3 Tips To Get Approved With Bad Credit
By Auto Loan Specialist
Your credit score doesn’t mean everything to the banks, they look more closely at your current and prior trade lines reflected on your credit report. Here at Auto Loan Specialist we have seen people with below average credit scores get approved for prime interest rates. On the other hand we have seen people with above average credit scores get declined for prime interest rates. We have noticed there are 3 major factors that can make or break a really great approval for our customers. Here is a list of three factors that lenders look at:
1) Credit Utilization
Credit utilization means how much credit you have used versus how much credit you have available to you. For example, Bob may have just received his first credit card with a credit limit of $1000. If Bob purchased a bicycle for $400 his credit utilization would be 40%. Now if Bob gets approved for another $1000 credit card and hasn’t made a payment on his original bicycle purchase of $400, his total credit utilization is now only 20%. Bob has now lowered his total credit utilization by taking on more credit. All Bob needs to do is make his monthly payment on his $400 bicycle purchase and he is on the right track!
The lower your credit utilization percentage the better! The recommended credit utilization ranges from 10 to 25%. Some advisors recommend using less than 10% of your credit utilization. Remember though, using your credit is good! It proves to banks and lenders you’re able to manage payments and you understand how to use credit properly.
2) TDSR – Total Debt Service Ratio
TDSR refers to how much of an individual’s gross monthly income goes towards paying their monthly debt obligations such as: rent/mortgage, cell phone bill, credit card payments, utilities, personal loans etc. An Ideal TDSR should be less than 40%. It’s ok if yours is higher than 40%, but it may mean lenders could offer you a higher interest rate.
For Example if Bob makes $5000 a gross monthly income at his job, and his total obligations are $2500 (This includes his rent, credit card payments, and utilities) Bob’s TDSR would be 50%.
TDSR = Monthly Total Debt Obligations
Gross Monthly Income
3) Recent Late Payments On Loans & Credit Cards
We get it! Life happens, things arise and most of the time it’s not your fault! From a lender’s perspective they don’t know the reason behind you missing a credit card payment or auto loan payment. They just look at your credit report / banking history such as NSF fees. Recent missed payments can raise red flags when lenders decide to give you money for an auto loan. It can help if you’re able to get all caught up with your recent missed payment, especially if you missed an auto loan payment. If you’re able to do this before seeking a pre-approval you will have higher chances to get approved at a lower interest rate.
Lots of Canadians have missed payments or perhaps have collections. If you can take care of your Credit Utilization, TDSR, and Late Payments your chances of getting approved for an auto loan with a low interest rate rises dramatically!
We would love to help you find your next vehicle at the absolute lowest possible interest rate!
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