Your credit score is one of the most critical aspects of your financial life. Most people, however, are in the dark when it comes to issues on this topic. Especially when it comes to understanding what an auto credit score is. They do not know that credit scores affect one’s ability to access things such as jobs, loans, and apartments. While applying for a car loan, for instance, you need to know your credit score.
Knowing your credit scores before applying for a loan enables you to predict if you will be granted the car loan. It is also crucial because credit score and auto loan rates are what most lenders will use to determine the interest rates that you will pay.
Knowing your score helps you to better prepare and understand what you can get. You can also use this knowledge to negotiate for a better APR from your lender. This is due to the fact that your credit score and auto loan rates are very closely related.
Auto Credit Score
The auto credit status is a little different from the score that you and I access online through the various portals. Although they are interrelated, auto credit scores focus more on aspects that auto lenders view as important.
This is the reason why the credit scores that you get from most sources differs from what your auto loan provider gets. The credit scores are mainly based on the following five main factors
• The payment history – this determines 35%
• The amount of debt you have – this determines 30%
• The length of your credit history- this determines 15%
• The mix of credit – this defines 10%
• Your recent inquiries – this determines 10%
Your Auto Credit Score Breakdown
Auto credit scores are based on the applicant’s payment history and habits. Auto lenders believe that by using this strategy, they are able to predict if you are likely to default the payment when you come across financial turbulent.
When calculating auto credit scores, auto financiers do not openly admit how much each factor contributes. They, however, are known to focus on recent bankruptcies or signs that you are on your way to one. They also look at your short-term credit history as well as consider whether you have had any credit repairs. Finally, they consider if you previously defaulted on any auto loans or had any repossessions.
Your Auto Credit Rating Primarily Comes From Your FICO
FICO calculates the credit scores used by most automotive dealers. This information is usually tailored toward the auto industry and rarely will it get in the hands of the consumer. It is important to know that 90 percent of the lender’s decision is usually based on this score. It is important, therefore, to ensure that your score is high at any given time.
The difference between the auto credit score and the standard credit scores is enormous. It is interesting to note, however, that your likelihood to qualify for an auto loan is higher than your likelihood to qualify for a credit card most of the times. This decision is usually informed by research that indicates that consumers are more likely to ignore other payment but rarely do they ignore auto loan payments.
This is the reason why the auto industry prefers to calculate their score other than relying on the general credit rating. Borrowers, therefore, are urged to service their auto loans effectively so that they can improve their ability to get a better auto credit score in the future.
Auto Insurance Credit Score Breakdown
What does auto insurance credit score mean? Well, an auto insurance credit score can be defined as the score that insurance companies give to a particular individual. It is based on the probability of the individual to file for a claim while they are under the insurance cover.
This score is primarily based in the individual’s credit score. So, what does auto insurance credit score mean for insurance premiums? The score affects how much premiums a person pays for their cover. This is informed by the fact that the score indicates the person’s likelihood that they will file for a claim.
People with high auto insurance credit scores are less likely to file for a claim hence their premiums are usually low. On the other hand, people with low scores are more likely to file for claims. As a result, they have to pay higher premiums.