How’s Your Credit?

how is your credit?Ever since the financial crisis of 2008, banks have become incredibly cautious.  At the dealership, I see people failing to get approved who were easily approved a few years ago.  The credit approval pendulum has clearly moved to the far other side.  Unfortunately, many people who believe their credit is in good shape are frequently surprised (and somewhat embarrassed) to discover that under the new standards, they cannot take advantage of those low finance rates to buy their new car.  

Here are some warning signs that your credit score is in the danger zone:

  • Do you pay all of your bills on time?  Paying late, or having your account sent to a collection agency will torpedo your credit score and any chance of financing a car.
  • Have you run some of your balances up to your credit limit?  Keeping your account balances below 75% of your available credit may also help your score.
  • Have you acquired new credit cards recently or have you applied at different financial institutions for a loan as a way to shop for the best rate?  Avoid applying for credit unless you have a genuine need for a new account. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can actually repay. A flurry of inquiries will prompt most lenders to ask you why.

I recently had a customer apply for a bank loan so she could shop for a used car and buy it for cash.  When she found a car and realized that the dealership could get her a much better rate, she decided to finance the car through the dealership (who has access to better rates through selected banks).  Well, the bank that the dealership was using, declined the customer because she had “already applied for another loan” which put her score over the limit. We eventually got her approved after some lengthy discussions with the bank.

As the above example illustrates, seemingly innocent financial behaviours can often put you in a difficult position when it’s time to finance a new or used car.  

To get information on your credit score, it’s worth the small fee to discover how you rate and whether there are errors in the data that need to be corrected.  The key rating agencies in Canada and the US will provide you with a free report. To get your data, contact Equifax Canada Inc or TransUnion.

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