Knowing your credit score before you begin shopping for a new or used car is essential. Since you probably have a specific budget in mind, you need to make sure you can afford the payments based on how much interest you will be paying. It is best to do your research before you begin looking for a car so you have the upper hand when price negotiation begins.
There are five credit score tiers auto lenders use to determine whether you qualify for a loan and how much interest you pay. Knowing this information up front will help you determine what type of car you can purchase.
This is the lowest tier on the scale and is also sometimes referred to as 5 Tier, E Tier, or Subprime Tier. People with this type of credit may have no good credit or a limited credit history. They may have changed jobs recently, had a bankruptcy or foreclosure, or several collection accounts or charge offs. Although it may look pretty bad on paper, if you work with a bad credit loan specialist you may still qualify for a loan without paying exorbitant interest rates.
This credit tier is sometimes referred to as 4 Tier Credit, D Tier, or Bronze Tier credit in the auto industry. Car buyers who fall into this category may have relocated from another state recently, may have a bankruptcy or foreclosure in the recent past, may have bad credit or no credit, or several collection and charge off accounts. If you fall in this category you may want to repair your credit before applying for a loan. Although you can probably get a loan by working with a finance loan specialist, you may pay less interest if you increase your credit score first.
Credit scores in this tier may also be called 3 Tier Credit, C Tier, or Silver Tier. People who fall into this tier are usually those just starting out with less than 5 years of credit history. They may have slow pay on credit cards with high balances and a charged off account. Make sure you check your credit score to improve accuracy. If you have an account that can be fixed easily – go ahead and pay it off. In this credit tier lenders often look closely at your ability to pay and you should be able to get a fairly decent interest rate for your loan.
This credit tier is sometimes referred to as 2 Tier, B Tier, or Gold Tier. Buyers in this tier usually have some slow pays, may have credit cards that show balances over 50% of the available credit limit, or several new credit inquiries on the report. Making sure the report is accurate is essential with this tier. The difference between interest rates could be up to 4% between a B Tier and A Tier credit score.
These tiers are also known as 1 Tier, A Tier or Platinum Tier and 0 Tier, S Tier, or Diamond Tier. Car buyers in the A Tier may show several new credit inquiries on their report compared to someone with A+ credit or a small collection. Obviously A+ credit will get you the best auto loan rates and usually no money down if the incentive is being offered. A+ credit usually shows at least 5 years of good credit, current or prior well paid auto loans, and low balances on revolving credit.
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