After driving my 1997 Nissan Maxima for the last 16 years, I decided to upgrade and buy a new car. I walked confidently into the dealer with my check book, credit card, and the title to my Maxima ready to make a deal. And to cut to the chase, I eventually did come home in the certified pre-owned Honda I had seen on the dealer's website. But as I quickly learned from speaking with a finance manager, having an outstanding credit score doesn't guarantee you a car loan.
My outstanding credit score
The car I was looking at was just over $13K. Between cash and trade in, I intended to put $6,800 down. After taxes, registration, and other fees, I would be financing less than $10K. A quick credit check showed I had a 737 credit score. I also had financed two cars in the past and paid them off with no problems. To top it off, I work full-time as a registered nurse. Getting a loan shouldn't be a problem, right? As it turned out, I was turned down for a loan by three banks before one would accept my application.
Credit history vs credit score
Credit histories and credit scores are two different things. Those two car loans I paid off? They didn't show up on my credit history since credit history is only based on the last seven years. The second car loan was paid off in 2001. Since then, I never took out another car loan, or mortgage, or even student loan. I've been living debt free for the last 10+ years with only one credit card. And as for that stellar 737 credit score, that's just a number which shows how well I pay off debt. Having a high credit score is nice, but without an extensive lending credit history, I have little to back it up.
No credit does not equal bad credit
Having no credit may not be ideal, but it's not the same thing as having bad credit. Bad credit means you have a history of late payments or defaulting on loans. When trying to secure a loan, banks may be wary about taking on a bad credit customer because they want their money back with interest. And a questionable payment record means they may not get their money. While the person with no credit is still a risk, at least he can build a credit history quicker than it takes to clean up a spotty one.
A high credit score only goes so far. You need a track record to back it up. At least for now, I'm in the clear should I need another loan within the next ten years. After that ... I'll let you know.
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Janna Heron, Is No Credit The Same As Bad Credit?, Bankrate.com, February 2013
Robert Berger, Credit Report vs. Credit Score: Do You Know the Difference?, US News and World Report website, April 1013
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