Auto FICO Credit Score: What It Is and How to Build It

August 3rd, 2016 by

Aventura Fico Credit ScoreEver financed or leased a car? Then you’re familiar with how your credit score can affect your monthly payments, interest rate or eligibility. But if you haven’t done either of those things, you might not know how your credit score will affect you when you go to buy a car. Well, today we’re going to talk a little about FICO Credit scores. More importantly, FICO Auto Score 8 but first, here’s a little background.

To start, a credit score is a number between 300 and 850 that lets lenders know how risky it would be to lend you money. The higher your score, the less risk lenders will be taking, and the better for your financial life overall. There are many ways to build the score and many ways to lower it.

FICO Auto Score

What does “FICO” stand for? “FICO” is the acronym for Fair Isaac Corporation, an organization known for their credit calculation method that calculates credit scores based on multiple factors. They just don’t provide one credit score though, they provide many. Because FICO is constantly updating, at this time, they have configured FICO Score 9, the most up-to-date calculation.

However, most lenders stick to FICO Score 8 due to its wide use. FICO Score 8 is just one type of credit score, but there are actually credit scores for nearly every industry out there. People build credit when they have and use credit cards, establish loans,  pay rent or mortgage payments, and when they take out loans for cars.

That’s where FICO Auto Scores come in. A FICO Auto Score is a credit score for auto financing. It is also a number that tells lenders the risk of lending to a potential applicant, but the range for an auto score is 250-900. Unlike regular credit scores, an auto score is not made available for the public eye. Only lenders dealing in the automotive industry can see this number.

You, and anyone else who is interested in their FICO Auto Score can get an idea of how high it is based on the same information auto finance lenders are looking for:

  • Do you have history with an auto loan, now or in the past, and if so, did you make payments on time?
  • Was your car repossessed because you failed to make payments?
  • Was the loan sent to a collections agency because you failed to make payments?

If you had an auto loan before, you should know the answers to these questions. Depending on how high or low a FICO Auto Score is will determine whether an applicant is eligible to receive a loan. If it is high, then the applicant has a better chance to get approved for a loan and a better chance at getting a better interest rate.

If the Auto Score is low, either from bad credit history or no history, then the chances of getting a car loan could be low and the interest rate could be higher, resulting in higher monthly payments.

If you never had an auto loan, then auto finance lenders may default to your credit score to evaluate any potential risk. This is where checking your credit score will come in handy. If it is low, or if you have no credit, no need to fret, you can build credit, but it will take a little time.

Building Credit

  1. Have steady income. Without money, the rest of these steps will be impossible.
  2. Get a secured credit card. Just like a debit card, a secured credit card uses your money. At the beginning of the month, you put money into the account associated with the card. The credit limit will start low. Let’s say $500. At the end of every month, you replenish that $500 (or less if you don’t spend it all). By doing this, the credit limit will rise over time.
  3. Use the card every month and pay it off completely. Just having the card isn’t good enough, it has to be used to start building a credit score. Then, you should pay it off every month, i.e. replenishing the account. So live within your means, or use the card on small things like when you shop at the convenience store.
  4. Pay on time or as soon as you can. Most credit companies will have a grace period. Life happens and maybe your paycheck comes in a few days after your payment due date. That’s okay, as long as you replenish the card before the grace period is over. Each company has a different grace period, so be sure you know yours.
  5. Don’t open too many accounts at once. Opening more than one account, especially with your first card, is a red flag. Every time someone applies for a credit card or a loan, their credit score is tagged, causing it to drop. Use one credit card for six months, and if you can handle that, open another. It’s best to have three – one for the essentials, one for fun, and one for emergencies. Just be smart – don’t max them out and be sure you can pay them. And, something else to keep in mind, the more open credit you have, the more liability the credit agencies will see you having. Too many credit cards are not a good thing.
  6. At the six month mark, before applying for more cards, check your credit score. It is your right to receive a free score once a year. However, you can get three if you contact Experian, Equifax, or TransUnion individually. Contact one of them after six months, and then one of the others 3-6 months later to check your progress.
  7. After having a secured credit card for a year, apply for a true credit card. If you’ve completed steps 1-5, your credit card application should be approved. Then, continue following steps 1-6 and you’ll be well on your way to great credit.

It should be clear that building or rebuilding credit can take a long time whereas ruining credit can happen fast. The best thing you can do is be patient and responsible.

Photo Source: Shutterstock; Photo Copyright: Ribah
Posted in local