Understand This Before Applying for a Loan

You’ve come to Car Deal Expert because you want to apply for an auto loan or an auto refinance loan. One of the first things we advise you to do before applying is to know your FICO score and examine your credit report for free at AnnualCreditReport.com. That way, you’ll know what kind of information Equifax, Experian and TransUnion have on their credit reporting file. You’ll be ready to apply for a loan with confidence that there will be no surprises.

How Does Credit Reporting Work, Exactly?

Thanks to Alan Barnes, a certified IAPDA Certified Debt Arbitrator and CEO of Debt Regret, Inc., we have an easy frame of reference. In his EzineArticles piece “Credit Reporting: How Does it Work?“, we see that lenders have access to all the personal, legal and account data necessary to make a decision about your creditworthiness. Use of all three credit reporting agencies is common, particularly for larger loans like auto loans and auto refinance loans. Think of it as a financial background check.

Making Out Your Tradeline

Whenever you submit an application for credit, the creditor sends the info to the credit reporting agencies. The same thing occurs each month after that. Not all creditors do this, but the majority will. This is how they build their dossier on you, called a “tradeline.” Every creditor has one on you. They’ll know your name, address, Social Security number, employment details, marital status, phone number and even income. What you do with money – using credit, paying bills on time, keeping your bank balance in the black – is recorded over time. Depending upon the situation, credit reporting agencies may even hire outside companies to do further research into your financial responsibility portrait. They try to spot any discrepancies.

Why Do They Report on You Each Month?

That’s an easy one. It’s because billing cycles commonly run in 30-day intervals. If things go awry (i.e., your credit account is in arrears), the creditor will report it to the credit reporting agencies per their company policies. These policies vary from one creditor to the next, however. Some will ding you after 30 days past due, but others many go as long as 60 days. A good rule of thumb is to assume that any creditor will be strict with you and report after 30 days, so remember to pay your bills on time. In addition to first infractions, creditors also report on how often you’ve been 30, 60, 90 and 120 days past due. It all works in multiples of 30 days. The more days you’re late, the worse off your FICO score will be.

Those Dreaded Rating Codes

Creditors assign a code to you based upon your payment history. Barnes explains that R-1 is a good rating for an account that has been kept up to date. R-2 means that payment was 30 days less, but less than 60. R-3 is 60 days, but less than 90. R-4 is 90 days, but less than 120. Finally, R-5 is the proverbial scarlet letter, as it signifies to credit reporting agencies that you are at least 120 days overdue in your payment. Let’s not even talk about R-7 through R-9, which verge from repossession of collateral to bankruptcy discharge.

Getting Approved for an Auto Loan or Auto Refinance Loan Isn’t Hard

Provided you know your stuff before you apply. Here’s a good resource to help you determine how we’ll you’ll fare at Car Deal Expert. Credit reporting is a fact of life, but it doesn’t have to be scary. Good credit habits are essential if you want to reduce your interest rate on an auto loan or auto refinance loan!

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