One in four Canadians have an average or low credit score. Having less-than-perfect credit when you’re looking to purchase a car means there will be more obstacles, but know you’re not alone. At Birchwood Credit Solutions, we realize the importance of a car for everyday life. That’s why we specialize in helping people with less-than-perfect credit or no credit history get a car loan with bad credit.
What is a credit score?
A credit score is also referred to as a FICO score. FICO scores in Canada sit on a scale that ranges from 350 to 900. Scores above 800 are excellent, between 600 and 800 are considered average, and scores below 550 are considered extremely risky.
Why you might have a less-than-average credit score
The largest component of your overall FICO score is your payment history. Missed payments and late payments account for 35%. Ensuring your payments are made in full and on time can actually help rebuild your credit score.
Amounts owing on accounts
The total amounts owed on all of your accounts — credit cards, student loan, and/or small loans — makes up 30% of your FICO score. It also takes into consideration how much of your available credit you’re using. For example, if your credit card’s limit is $3000 and you’re using $2000 or 67% of your total available credit–you’ll have a lower rating than if you’re only using 50% or less.
Length of credit history
The length of your credit history comprises 15% of your FICO score. If you’re new to Canada, have never opened a credit line or loan, or don’t have a long history of paying bills, you’ll likely score low on this component.
If you don’t have more than one type of credit card, student car loan, or mortgage, your FICO score will be lower. A mix of different types of credit shows that you can manage (pay off) different types of debt. On the flip side, if you open several types of credit within a short period of time, it sends a warning sign to lenders.
Bankruptcy and consumer proposal
If you’ve filed for, gone through, or are currently in the process of bankruptcy or consumer proposal, your credit score may be dramatically lowered. However, going through consumer proposal or filing for bankruptcy does not put you at a dead end for getting a car loan. Learn how to get a car loan after bankruptcy or more information on car loans and consumer proposal.
How does a lower credit score impact you when buying a car?
Lenders view less-than-desirable credit scores as anything that falls between 540-600. Yes, having a low credit score can add some additional steps when buying a vehicle, but the process should never be overly complicated or stressful. You should expect the process to be slightly different than if you were seeking a car loan with perfect credit. Know that your application process will be a little more in-depth.
Here are a few things to spend some time working on and considering before your visit to Birchwood:
Know your credit (FICO) score
Knowing your credit score is an effective way to understand your credit situation. You’re eligible to order your credit report for free once a year from credit bureaus Equifax Canada or TransUnion Canada. If you can’t wait for a free report by mail, for around $15 both TransUnion and Equifax offer an instant credit report online. The Government of Canada also has some helpful resources to learn more about your credit score.
Be prepared to talk about your credit history and current financial situation
This conversation shouldn’t be intimidating. It’s a way for the lender to get to know more about your current financial and credit situation. Also know that your credit history isn’t the only piece of the puzzle. Other important factors include your annual income, how long you’ve been employed at your current job, and how long you’ve lived in your home. These factors show stability and can have a big impact on getting a car loan with bad credit.
Interest rates will be higher than those available for people with great credit scores
People who have credit scores of 740 and above typically get the best financing available. With less-than-perfect credit, know that your interest rates will be a little higher. You’re probably not going to get the too-good-to-be-true zero percent financing featured on commercials. On the same level, you shouldn’t be paying a sky-high interest rate. Interest rate on loans at Birchwood Credit are competitive and not too far off from what a bank generally offers.
Recognize that you might not land your dream vehicle right away
Based on your credit score and current financial situation, you might not be able to drive away in your dream car just yet. To help improve your credit score, being budget friendly is advised. Can you opt for a more compact car instead of an SUV? Choose a pre-owned vehicle over a brand new car? At Birchwood, our goal is to help you establish a solid payment history. Through consistently meeting your payments, we can assist you in refinancing when your credit score improves.
Birchwood Credit Solutions in-house financing can help you discover your options for getting a car loan despite a less-than-perfect credit score, and empowering you to improve your credit situation. In-house financial service groups are a simple and hassle-free option that avoids dealing with an outside lender. Our goal is to get you into a reliable Birchwood vehicle that helps improve your quality of life.