Auto financing while trying to raise FICO score

Anonymous · ‎05-18-2007

This is my very first post and I just have to thank all of you for the wonderful information you post. I just found the site a few days ago and I've already spent countless hours reading and learning. I can't thank you enough for sharing your wisdom and experiences.

Now to my questions at hand. I need to purchase a new car very shortly. My last car payments ran about 30 days past due many times throughout the period of the loan. All the payments were made, but unfortunately because of late fees, the finance company has reported it as charged off for $711 and have held on to the title. The account was marked as closed in 2002. I contacted the finance company and settled with them for $600 and paid that off the other day. Will having paid that balance off (which I had to do to get the title to get rid of the car) hurt my score?

I also have been working to improve my credit score over the past year. The first time I checked about a year ago my EQ was at 580 and now it's at 638. My TU is 637. I've been thinking about applying for another card to build more positive history. Am I better off applying for the car loan first or applying for a new card before the car? I currently have a small limit unsecured MC and have been an authorized user on an AMEX account since 1993. I don't believe that I can wait more than a month for the new car because of the condition of the old one. If I pay the MC down to below 10% now will that reflect in my score within the next month? (I sure wish I had read the less than 10% tip a while ago.) What's the best strategy for me to use?

Also, I did check the whogavemecredit site but wondered if there were any tips about which card was the easiest to get. I really don't care if it's a major card or a department store card, I would just like one that I can definitely get to add to my postive history.

Thanks in advance for any insight you can give me.

Anonymous · ‎05-19-2007

Getting a new card right now will do little to improve your credit in the immediate future...adding accounts is a medium to long-term, not a short term, strategy to boost your FICO. Your best short-term lever is reducing utilization...if your utilization is currently 50%, reducing it to 10% will probably give you a 5 to 10 point increase.

Since you have a FICO in the low 600s, you'll likely get financed (especially since your baddie was five years ago), though at a higher than desirable interest rate. You're not in Credit Hell, so your rate would likely be 12 to 15% rather than the 25% that people with FICOs in the 500s contend with. (I would say 10%, except your baddie was on another car loan, and any creditor tends to weigh baddies pertaining to its credit type a little more than baddies pertaining to others.

I would get the car loan first. Work on paying at least an extra $50 to $100 toward the principal monthly so you get that loan retired more quickly. If you get the loan in June, wait until September or October, then get another CC. You don't want to go for too many lines or credit too quickly, lest you annoy or spook the FICO beast into thinking you're going on a credit binge.

ADDENDUM: How much money are you looking at using to pay down the MC? If we're talking hundreds, go ahead and pay down. If we're talking thousands, you might want to hold that money in reserve to put down on the car, and make paying down the CC a longer-term endeavor.

Message Edited by TheNewWorldMan on 05-19-2007 12:10 AM

Tuscani · ‎05-19-2007

http://ficoforums.myfico.com/fico/board/message?board.id=ficoscoring&message.id=1231

Anonymous · ‎05-19-2007

Thanks NewWorldMan. The credit card is only in the hundreds so I paid that off this morning except for a small balance that will leave me under 10%, Hopefully it will report the new balance pretty quickly so it will reflected by the time I get the title.

I was able to get my EQ score up about 100 points since last year without knowing any of the great information I've found here. I'm really looking forward to increasing it even more now. It feels good to see some progress and know that I can still keep moving ahead.