Your credit history is one of the first things auto lenders and finance companies review to determine if you’re qualified for car financing. If you have bad credit or no credit and are looking to get approved for a car loan, mortgage, or credit card, there’s a strong chance you may not get approved for prime credit with lower terms and interest rates. Depending on your credit score, you could qualify for nonprime or subprime financing.
What is nonprime financing?
According to Experian, nonprime financing is credit given to consumers with credit scores that fall between 601 and 660 on the 300 to 850 range. However, credit score ranges and borrower classifications vary across lenders and organizations.
Since nonprime credit scores fall between subprime and prime ranges, borrowers in this category can take their credit to the next level with a little focus and discipline. If you fall in the nonprime range, skip to the last section for tips on how you can improve your credit to qualify for prime financing.
What is subprime financing?
Subprime or deep subprime financing is credit given to credit-challenged consumers who either have bad credit or no credit history established. Borrowers in these categories typically have credit scores below 600.
Although interest rates and loan terms in these categories generally fare on the higher end, there is plenty of opportunity for borrowers with bad credit or no credit to improve their credit and move on to traditional prime financing.
How can you improve your credit?
- Pay your bills on time, every time.
Late payments can have a negative impact on your credit score. One way to ensure your payments are on time is to set up automatic payments and/or electronic reminders. If you have any missed payments, get current and stay current.
- Keep balances low on your credit cards.
Some credit scoring models look at how close you are to being "maxed out," so try to keep your balances low in proportion to your overall credit limit. Experts advise keeping your use of credit at no more than 30 percent of your total credit limit.
- Build your credit history.
Since credit scores are based on experience over time, your score will likely improve the longer you have credit, open different types of accounts and pay back what you owe on time.
- Apply for and open new credit accounts only as needed.
Credit scores may consider your recent credit activity, which is an indicator of your need for credit. If you apply for a lot of credit over a short period of time, it may appear that your economic circumstances have changed for the worse.
- Be careful closing accounts.
If you close some credit card accounts and put most or all your credit card balances onto one card, it could hurt your credit score if you are using a high percentage of your total credit limit. Frequently opening accounts and transferring balances can hurt your score as well.
Credit Acceptance is an indirect auto finance company that works with more than 12,000 car dealers across the nation to help credit-challenged car buyers get approved for financing. Once you fill out the form on our website, we will connect you with three enrolled dealers in your local area that can help you start your credit approval to buy a car.
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