What Causes Bad Credit, and Its Impact on Car Buying

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - September 1, 2020

Many things can cause your credit score to take a dive. It’s not a static number, so you can work to improve it. Building your credit score is worth it since it makes up a large part of your car buying power.

Common Reasons for Bad Credit

If your credit isn’t perfect, you’re not alone. There are many reasons why your credit score could have taken a turn for the worse. Whether you're a new borrower or have had an unforeseen life event that made expenses hard to manage, the bottom line is bad credit can happen for many reasons.

Common causes of poor credit include:

  • Late or missed payments on bills, loans, or credit cards
  • Defaulting on loans
  • Bankruptcy
  • Vehicle repossession
  • Charge-offs
  • Accounts sent to collection agencies
  • Having a thin credit file
  • Identity theft

However, your credit score isn’t set in stone. In fact, depending on what is (or isn’t) being reported on your credit reports, your credit score could change dramatically in a matter of weeks. It’s worth it to spend a little time on improving your credit since it can affect what interest rates you qualify for, and it can even determine if you can get approved for auto loans.

Bad Credit and Your Car Buying Power

Bad credit can lower your chances of getting approved for new credit, like car loans. There are many traditional auto lenders that are likely to turn you away just because of a low credit score, even if you have the income to pay for the loan.

This is because your credit score serves as a quick snapshot of how you've handled borrowed money in the past. And if your credit score is low, or your credit reports have some questionable things in them, it can make some lenders hesitant to approve you. Don’t let it get to you too much, though, because there are quite a few car loan options that bad credit borrowers can check out.

For those who are just starting out in the world of credit or borrowers who’ve had credit issues in the past, look to bad credit auto loans. These loans are done through dealerships with special finance departments that are signed up with subprime lenders. Subprime simply means bad credit, and these lenders look at more than just your credit score to determine your ability to pay for a car loan.

Requirements of Bad Credit Car Lenders

Subprime lenders require you to submit proof that you’re ready to take on new credit, since they don’t just use your credit score to determine your eligibility for vehicle financing.

While lenders vary in their specific stipulations, most subprime lenders follow similar guidelines that borrowers must meet to qualify. Typically, subprime lenders require:

  • A minimum monthly gross income of around $1,500 to $2,500.
  • A down payment of at least $1,000 or 10% of the car’s selling price.
  • A working contract cell phone or landline phone.
  • A valid driver’s license with your current address (not revoked, expired, or suspended).
  • That you’ve lived in the same residence for one year.
  • That you’ve been at your current job for around six months to one year, and/or that your work history is at least three years long without large gaps (30 days) between jobs.

If you apply with a subprime lender, they may require more or less documents for you to be considered for an auto loan. Although, the requirements that we mentioned are generally the basics of applying.

The keys surrounding these requirements are ability, stability, and willingness to pay. This means that you have the ability to pay for the vehicle, you have living stability, and your down payment shows that you’re willing to invest in the car.

Once you submit all the documents which prove that you got the right stuff to qualify for a bad credit auto loan, if you’re deemed eligible, you work with the dealer to choose a vehicle and take delivery. Besides getting into a car, there’s also the potential for repairing your less than perfect credit!

Credit Repair and Auto Loans

Just because your credit is poor right now doesn’t mean that it has to be like this forever. Like we said: credit scores are ever-changing. Eventually, negative marks fall off your reports, usually around seven years after they appear. By adding new credit to your credit reports and making timely payments, you can move on from being a bad credit borrower if you play your cards right.

You can start your credit repair journey with an auto loan. Subprime car loans are installment loans, and they have great potential to build a solid repayment history and boost your credit. Your payment history is the most influential factor that makes up your FICO credit score pie – a big ol’ 35% slice! One of the best things you can do to raise that three-digit number is to pay your bills on time.

Subprime lenders report their loans to the major credit reporting bureaus, which means your timely auto loan payments are reflected on your credit reports. With on-time payments, you can avoid damage from missed or late payments, defaults, repossessions, charge-offs, and accounts sent to collection agencies. Missing too many payments on your bills and loans creates a bad credit snowball effect.

With some hard work, you can pull yourself out of the depths of poor credit. Having a good credit score can mean savings on future credit. Your credit score largely determines what interest rates you qualify for and what car deals you can get into – not to mention your ability to qualify for all the other types of credit.

Finding a Bad Credit Auto Lender

Having a lower credit score right now can impact your ability to get an auto loan in the first place, but it isn’t impossible if you apply with the right lender for your credit situation.

Finding a special finance dealership with bad credit lending resources can be difficult if you’re not sure what to look for. You don’t have to do the legwork of searching all over town if you start with us at CarsDirect.

We’ve already got a nationwide network of special finance dealers, and we can look for one in your area at no cost. To begin, fill out our car loan request form, and we’ll get to work for you!


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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