@Anonymous wrote:
Equifax shows 593. Transunion shows 592. I use credit karma to check my scores. My credit profile is really simple, these are basically the only two loans on my account. I’m not in debt of anything else. I know that car loans are the kind of loan that will drastically change your credit score. I get an average of 15-20 points for paying my car payments on time every month. But the reason that it’s still at 590 was because I got a second car loan. I’m just wondering, if I get 15 points every month for paying these car payments, then around 16 months later, my credit score would be at 830. I’m pretty sure that’s not how it works and rarely does anyone get up to the 800s range unless you’re a business owner etc. But I’m hoping that my credit score would be at least close to 700 if I were to pay both car payments on time for around a year and a half. And hopefully I can get interest rates around 7-8%
And I don’t really planning on financing or borrowing anything else during this time period (because obviously I can’t get credit cards with a credit score of 590 lol)
So I’m just wondering if my expectations are close to realistic or am I pretty off?
And does paying 2 car payments gives you more boost than just paying for 1? Or does it really not matter at all?
1. Your Credit Karma Vantage scores are not meaningful. We need to know your FICO scores.
2. Since your questions seem to focus on installment loans, I can tell you these basic principles for enhancement of your FICO 8 scores:
(a) the lower your aggregate installment loan utilization percentage the better
(b) when it's down to 9% or less you're in the sweet spot
(c) whenever you 'refinance'
(i) you usually wind up with losing a partially paid off loan and replacing it with an unpaid loan, worsening your installment loan utilization percentage
(ii) you will always get a hard pull, or more than one
(iii) you will always reset your age of newest account
(iv) you will always lower your average age of accounts
So don't think of refinancing as a way to improve your credit scores; it's not. And if your scores are close to your Vantage scores, it won't even be a way to save money.
And yes, you are way off in imagining how the events you describe will affect your credit scores. Among your many misconceptions, you don't get points for making your monthly car payments, you don't get more points for having 2 loans rather than 1, there's no advantage to being a business owner, etc, etc.
You need to find out your true FICO 8 scores, then tell us what the negatives are in your reports, and then we can advise you properly.
Hi Angel1013,
As stated, Credit Karma is not your FICO score which one of the various FICO scores is most likely if not definitely the score model your auto lender and all lenders will use. But you want to start by finding out your FICO scores. FICO 8 is a good start even if they use a different FICO score. Try creditscorecard.com for a free EX FICO 8 score. Others can tell you how to get a freeTU, EQ and EX FICO 8 score.
CK helps with reviewing the details and activity on your account but they weigh things differently to create a score leading to a different score with FICO. Some see CK (which is the Vantage 3 model, not FICO) scores close to their FICO 8 score, some see differences up to or even greater than 100 pts. Many think there isn't much difference but if the formula/algorithm (how things are calculated) is different, it will produce a different score.
For FICO when it comes to how loans will impact your score, the percentage of paid is important. The less remaining the better the score can be but only incrementally at various %'s until there's less than 9% of the loan amount remaining. New accts will impact most peoples scores and likely definitely yours will nothing else on your credit file other than 2 car loans (if I understand your statement). Refinancing your car in essence is like opening a new account, reset the balance to 100% outstanding and age of youngest account. If this is true then you may want to think about building your file with maybe a CC. I don't advocate opening accounts but when building credit you want to think about increasing your credit mix (diversify). Now if you can't or don't pay timely or spend responsibly, don't do it because it will likely have the opposite effect.
If you're not planning to re-fi or purchase for over a year then you have time to open a CC (will take a hit to your score initially), let it age a year (will get those points back if you use it responsibly and all others things remain equal).
In my opinion, your approach to this or what seems to be what you think will help your scores, may not or will not in and of itself. There are many things that could have allowed your Mom's APR to be reduced (lates aging or removed, certain decreases in CC and loan balances and the every import....time, aging of accounts and profile).
There are mega knowledgeable people on this site so when they ask to list your accounts and detail (not account # and not usually lenders although many have great knowledge about certain lenders), this will help those people help you with possible options to get where you want to be and ultimately answer your question. There's no good way to "guess" without details because it is a formula that creates your score.
FYI - No one can tell you what an APR will be next year or what you will qualify for even if it could be forecasted because not only the market but your file will determine this. A lot can change in a year.
https://www.investopedia.com/insights/forces-behind-interest-rates/
And the 1-4% APR theory you post is absolutely not a fact.
In addition to what others have posted, with only loans and no revolving credit it may be quite difficult to obtain significantly higher scores.
I know APR around 1-4% is only possible for business owners and senior people who has a whole life of credit history built up, so if I can even reach the 7-8% ball park I’d be happy
I would say that 7-8% is still very much in the predatory lending range for an auto loan, unless someone has no credit history or severely blemished credit history. With FICO scores in the upper 600s, it's quite possible to qualify for credit union financing in the 2-5% range, and around 700 most people should be able to qualify for manufacturer financing on new cars which are often as low as 0.9%. There is no need to own a business or be a senior. An average consumer should fairly easily qualify for auto loan rates in the lower single digits.
I'd study up here and ask questions in order to get your scores boosted up and that should save you thousands of dollars on your auto loan.
I think you need to do some reading on these forums. There’s lots of great info to be had!
If you don’t have any credit cards; a huge part of your score is being left untapped. Also on a file with only installment loans, the inquiry and opening of a new account from what I’ve seen adds points, it does not take them away, because you’re already being penalized for not having any revolving accounts so the “loss” of points from opening of a new account is offset by the positives of adding a revolving account to the mix.
As others have stated, your thoughts on auto loan rates are not correct. IMHO that sounds like something one might hear from a shady finance manager at a dealership.
If you don’t have any credit cards; a huge part of your score is being left untapped. Also on a file with only installment loans, the inquiry and opening of a new account from what I’ve seen adds points, it does not take them away, because you’re already being penalized for not having any revolving accounts so the “loss” of points from opening of a new account is offset by the positives of adding a revolving account to the mix.
As others have stated, your thoughts on auto loan rates are not correct. IMHO that sounds like something one might hear from a shady finance manager at a dealership.
@Anonymous wrote:
Loans do not reset AoYA; other than that all great advice!
Good to know. Thanks.