When it comes to your fico score and your car loan, few things have as much affect on the interest rate you will be paying. Very simply, having a good fico score is imperative to finding a car loan at a reasonable rate.

So what exactly is a fico score, and how does it affect the interest rate you will end up paying? First of all, keep in mind that a FICO score is basically somebody’s credit profile as established by the Fair Isaac Company.

This is the main indicator that shows how reliable somebody has been in paying off their bills, and is primarily what financing companies look at to determine if somebody is wroth the risk of financing a purchase for.

How is the fico score figured out? Quite simply, it is very involved, but keep in mind that all things such as filing for bankruptcy, unpaid bills, etc, negatively affect the score.

The lower the score, the higher risk you pose to credit institutions, because the more likely you are to default on a payment. I won’t go into exactly how it’s calculated, but keep in mind ,the faster you make your payments, the better your score will be.

Be sure that everything on your FICO score is accurate, particularly when applying for a loan, as this is essential to getting the best rate possible. Often times, companies can make mistakes when tracking this, and this is why it’s so important you be sure everything is correct.

If you see something on the score claiming you didn’t make a payment on time when you know for a fact you did, then by all means, dispute it. There’s no sense in paying more than you have to because of an error on the reporting companies part.

So what constitutes a good FICO score, average score, and poor? While it varies from company to company, here is a general idea of where you are.

If you are between three hundred and six hundred nineteen, you are considered to have bad credit, and pose a serious risk to companies. Here are some important tips to help you improve your FICO score and therefore get a better car loan in the process.

For more info on the FICO Score and your car loan, check out onlinecarloaninfo.com. This site shows you how the FICO Score another variables effect your car loan interest rates, and how to get the best rate possible.

Many people know that they need a high credit score to get a loan. A high credit score means that there is a lower chance that the money will not be repaid and the easier it is to borrow money. However, it is not widely known what goes into a credit score.

Credit bureaus use information about each borrower that is taken from a number of sources. Former employers, current employers, the number of residences a person has had in the last five years and whether or not the borrower owns his/her own home all provide some input data. In addition, a person’s credit history is examined and how often bills are paid on time is considered. Credit bureaus also look at legal issues such as civil suits, judgments, bankruptcies and criminal convictions which may affect a person’s credit.

All of these items go into the evaluation of a person’s credit. The end result is a determination of a person’s capacity, character and collateral - the three Cs of credit.

# Capacity is concerned with a person’s ability to repay the loan. The lender evaluates the borrower’s income and compares it to current expenses. The length of time a person has been at his/her job, the number of dependents and any alimony or child support payments are also considered. Not only does capacity involve a person’s current financial condition but it also considers future potential income - as would be possible for doctors, lawyers and professional businesspeople.

# Character is a judgment of a person’s willingness to repay debt. By checking into past credit history a lender can determine if the applicant is living beyond his/her means, if he/she is overextended or has been delinquent in paying bills. Character also reflects a person’s honesty in giving accurate and complete information on the application. Judgment of a person’s character also includes an examination of a person’s stability - how long has the applicant been at his/her current employment and how long has he/she resided at the present residence.

# The third C is collateral. Since there is always the chance that a person will be unable or unwilling to repay the loan, lenders often require collateral (generally property is used to secure the loan). If the borrower defaults on the loan, this property can be seized and sold so that the lender can recoup the money lent. The value of the collateral is directly tied to the loan. A car loan may require the car as collateral, a property loan may require the property as collateral. Sometimes, a lender can require money as collateral. A Certificate of Deposit or an annuity may be pledged for the loan. In all cases, if the borrower fails to pay, the asset is seized as repayment for the loan.

The Fair Isaac Corp., the creator of the FICO credit score - recently unveiled a new scoring model for determining credit scores. It is being called FICO 08.

The Better Business Bureau of Mississippi offers the following information about FICO 08 and changes it contains can affect consumers.

FICO scores range from 300 to 850, with higher scores being better. They are based on consumer credit history and reveal the risk level on loan defaults. A good credit score is anything higher than 700.

“A low FICO score keep consumers from getting loans to buy a house or car,” said Bill Moak, president/CEO of the BBB of Mississippi.

“Today, many landlords, utility services and employers are now relying on these scores as well. This means that a bad score can keep someone from getting a good insurance rate, an apartment, or even a job.”

According to Fair Isaac, the new FICO 08 is more forgiving of minor slip-ups and will more accurately predict a borrower’s risk of defaulting on payment obligations.

Factors included in the FICO score are: financial history, indebtedness, length of credit history, and number of open lines of credit. The new FICO 08 changes the weight for these factors.

“Consumers may see their scores go down if they have multiple delinquent accounts. Their scores may go up if they have only one delinquent account and demonstrate successful repayment on other debts,” Moak said.

Due to the constant increase in Identity Theft, the BBB recommends that consumers check their credit report and score periodically to be sure that they accurately reflect their credit record.

With the nation´s rampant foreclosure rate being called the worst since the Great Depression and California´s foreclosure ranking the second highest in the country according to RealtyTrac.com, I am asked many questions regarding the trials of foreclosure. Not surprisingly many of these questions are on the subject of short sales.

Q: “…how long after a short sale before I can get financing?”

A: The short answer: 18-24 months.

Why?

Since a short sale is usually negotiated because of payment default or foreclosure proceedings an important issue to be addressed is your credit score (FICO). A short sale definitely harms your personal credit far less than any other foreclosure solution such as a Deed in Lieu but your home loan payments were at the very least behind even if the lender had not yet issued a Notice of Default.

Interest rates are FICO driven meaning that the higher your credit score the lower the interest rate you receive on financing of a home and the lower the payments will be.

Ideally you´ll want to raise your credit score to at least 620 and 680 or higher is better.

Tips to Help You Get There

Get a free copy of your credit report at annualcreditreport.com and scrutinize it for any errors or discrepancies. Contact the reporting creditor to find out how to correct any misinformation.

Make all payments, even your rent, cell phone, utilities, etc., on time. Lenders typically don´t want to see any late payments in the past 12-24 months so you have time to plan. Major credit lines such as those for your car loan are vital but when rebuilding credit (or in the case of no credit history) simple everyday payments can come into play.

Pay off any collection accounts. The account balances can often be negotiated down by contacting the creditor and a lower amount accepted as total payment on the account. A charged off account is also considered an open account so be sure that if you have any charge offs negotiate a settlement!

Lenders considering new loans won´t make a loan when there are open collection accounts.

Keep the balance of any credit card paid down. Credit cards can become voracious monsters very easily. Use caution here. You want to keep the balance on each credit card to 25-30% of the approved credit line. In other words, if your credit line is $5,000 your balance shouldn´t be more than $1,250-$1,500. This takes in the point of your borrowing power.

A couple of don´ts: 1) Don´t close unused credit card accounts as a quick solution to raise your credit score—there is no quick fix, 2) Don´t apply for new accounts you don´t need simply to increase you borrowing power.

Should you find yourself struggling you can contact the non-profit Consumer Credit Counseling Services (National Foundation for Credit Counseling) at 1-800-388-2227 or on the web at www.debtadvice.org

LATE SUMMER IS supposed to be the best time to buy a new car, but savvy shoppers may actually find the best deals well before Labor Day.

Incentives typically peak in July, according to Jesse Toprak, executive director of industry analysis at Edmunds.com. And with new car sales at their lowest level in over a decade, dealers are getting desperate to move the metal before the 2009 models hit showrooms.

Here are some tips to score a good deal:

Profit off the Credit Crunch
Sure, it’s tougher to get a loan these days. But car salesmen are now competing for buyers with good credit and some are even willing to break even on the financing just to make a sale, according to Jack Nerad, executive editorial director at Kelley Blue Book.

To help you land favorable terms, shop around online and get pre-approved for a loan first. Then, see if the model you want comes with any incentives, such as 0% financing. “It’s hard for a bank to beat that,” says Nerad.

Don’t Be an Incentives Sucker
Some of the biggest discounts this year are on midsize and large SUVs. But with fuel prices rising, these gas guzzlers won’t hold their value as well as smaller, more fuel-efficient models, says Tom Libby, an analyst with J.D. Power and Associates.

Another incentives trap: buying a car just before an all-new version comes out. Mercedes-Benz, for example, is offering 0.9% financing, plus $4,000 in manufacturer-to-dealer cash, on its E-Class sedan through the end of July. Once the redesigned model comes out this fall, however, this older version is likely to shed 10% to 15% of its value. “There’s always a reason something’s on sale,” says Toprak. Instead, buy a high-quality model in the middle of its life cycle (most models are redesigned every four years). The upfront cost will be higher, but so will the resale.

Be Flexible
Luxury car makers are loath to advertise discounts, fearing that doing so will damage their “brand equity.” But that doesn’t mean they don’t offer financial incentives to dealers to help them sell certain models. Ultimately, that’s money dealerships can pass on to customers in the form of savings.

Visit Edmunds.com or Kelley Blue Book’s kbb.com site to find out which models come with the biggest discounts in your area. For luxury brands, the best deals are usually tucked into leases, and if you’re willing to compromise on body style you can save a few extra bucks, too. BMW’s 328xi wagon isn’t as popular as its X3 crossover, though they’re basically the same vehicle. Lease the wagon and you can save $50 a month.

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