Average FICO Score Drops Again For New-Car Loan Approvals

United States automakers are engaged in a struggle to survive and, in their fight to avoid complete insolvency, are making use of drastic, even unorthodox, measures. While, in today’s economic climate, governments bailouts seem neither drastic, nor unorthodox – everybody’s doing it, or so it seems – some of the other steps the big three are taking are certainly unusual.

It looks as if banks are lowering their standards for approving consumers for a car loan, at least a little. In March, 2009, the average FICO score for new-car buyers, 722, hit its lowest level since May 2006, according to CNW Research.

In November 2005, the average FICO score for financing a new-car buyer was 681, which was the lowest level recorded.'

The 722 average FICO score for March includes buyers who took out a car loan, lease and paid cash. It excludes commercial fleets used 80 percent or more for business.

As banks and lenders keep lowering the average FICO score required to get an auto loan, more buyers who need a car but don’t have perfect credit will be able to get approved for the car loans and leases they need.

Those in the market for a new vehicle would do well to check out the broad range of incentive programs available today. Auto manufacturers are competing against each other to provide consumers with reasons to choose their vehicles above the others. Some are offering unusually good opportunities, in light of the difficulties presented by the economic turbulence that characterizes the market today. However, it is always good to remember the wise consumer only makes the purchase if it makes good fiscal sense for him, not just because it is a great bargain.

Mortgage loans now require higher FICO score

You may think that having a credit score of at least 700 and a down payment of almost 5 percent will help you buy a home in this home buying environment. But lenders have tightened credit requirements for obtaining a mortgage when you're buying a home.

You may still be able to get an affordable mortgage through the FHA, which has lower down payment requirements, or that you're better off waiting until you have improved your credit score and saved more money for a down payment.

For the most part, your best loan option might be an FHA loan because of the size of down payment you want to put into the purchase. As for most other loan products, you may find it difficult to secure a low down payment loan.

FHA loans require just 3.5 percent in cash for a down payment. On a $160,000 home purchase, you'd have to put down at least $5,600, but you'd have to be able to afford the payments. On a 30-year fixed rate mortgage at 5 percent, your monthly payments would be about $840 plus real estate taxes and insurance.

While 700 is a good FICO score, it's not a great credit score. Some lenders are now looking for borrowers to have at least a 72o FICO score to get the best rates.

If you decide to pursue buying property now, speak with a mortgage lender to see what options you may have. You may be pleasantly surprised to find that you and your fiancé will qualify for a nice starter home. If not, at least you'll know what you have to do to get ready to buy down the road.

Sample Credit Report Dispute Letter

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name
Enclosures: (List what you are enclosing)

Help for people with no FICO Score

You might think that your FICO score is the be all and end all of your credit report. You would be wrong.

There’s a “parallel credit universe” out there, and it’s important to know how it works so that you can continue to work for the best credit possible, and thus the lowest rates on everything form your car loan to your home loan.

There are still only three major credit reporting agencies (TransUnion, Experian and Equifax), and most lenders either buy credit reports from them or send your account information to them. FICO, built by Fair Isaac, is a credit score that resides on the mainframes of all three agencies. But many people – an estimated 50 million in the U.S. – do not have any credit with lenders who report to the “Big 3” credit agencies, which makes it extremely difficult for them to get loans at competitive rates.

Outside of getting a credit card and taking on some debt, there’s another option for these folks. A company by the name of PRBC (Payment Reporting Builds Credit) allows consumers to self-report the details of their rent, utilities, cell phone bill and other nontraditional financial obligations. The company verifies your report, for a fee, and then grants you a new credit report. FICO has even built a credit score that will score their limited data and provide a risk score that lenders can use to evaluate nontraditional information for a fee of about $30. The advantage to this approach is that it gets you into the system of the credit agencies, albeit for a cost – and it’s still not widely used by mainstream lenders, said Ulzheimer.

There’s also a new credit score in town trying to give FICO a run for its money. VantageScore is a proprietary score created by all three reporting agencies that competes with Fair Isaac. You can learn more about Vantage here.