What?s A Good Credit Score To Get A Car Loan?

Posted by ashrafgilani on April 12th, 2018

What Is Credit Score?

Your credit score holds the information of how you manage your finances. It is a three-digit number that can be used to find your current financial standing. Credit score is managed by CCRIS (Central Credit Reference Information System) and CTOS. CCRIS is managed by Credit Bureau of Bank Negara, Malaysia. It maintains the history of all your credit records. Whereas, CTOS is a private company that provides banks and financial institutions with your credit report. Banks take help of CTOS in order to find the credit worthiness of individuals applying for their financial products.

What Is A Good Credit Score?

A CTOS score ranging from 697 to 850 is considered as a good credit score. Any score lesser that this range can result can cause obstructions on your way of getting a loan. The lesser the score gets, the lesser are your chances of getting a loan approved.

How Is Credit Score Calculated?

You CTOS score is comprised of the following 5 factors:

1. Payment History: Your credit score depends upon the repayment pattern of your old credit lines. If you have missed due dates on your credit card or a loan in the past, your credit score can go down. Whereas, if you have made all the payments for all your credit lines on or before their respective due dates, your credit score can increase. This factor makes up 35% of your credit score.

2. Amount Owed: The total amount you owe to the banks and financial institutions through your credit lines holds 30% of your credit score. The more money you owe, the lesser will be your credit score.

3. Credit History Length: Another factor that contributes to your credit score is the period of time you have maintained the credit line for. This factor makes up 15% of your credit score.

4. Credit Mix: Your credit score also varies with the different types of credit lines you have. This includes both secured and unsecured lines of credit. Credit cards and personal loans are unsecured credit lines, whereas a car loan or home loan is a secured credit line. This factor contributes 10% to your credit score.

5. New Credit: Your current credit score also depends upon the entry of a new credit line. This factor makes up 10% of your CTOS score.

How Does Your Credit Score Affect Car Loan Approval?

When you apply for a car loan, the bank or financial institution look for the following information before approving or rejecting your loan application:

• Is your bank account under any legal action?

• What is your debt-to-income ratio?

• How many times have you missed the monthly payment on your credit lines?

• How many time have you paid the monthly instalment after the due date?

• How much percentage of dedicated credit limit on your credit card has been utilised by you?

• How many times have you exceeded the credit limit on your card?

• How many credit lines do you currently have?

• Have you applied for multiple loans?

• How many of your loan applications have been rejected?

How To Get A Good Credit Score?

Your car loan application depends upon your current credit score. In order to get the loan approved, you should make sure that your credit score stays within the accepted range. You need to take the following steps in order to keep a good credit score:

• Do not hold multiple credit lines as it can be difficult to manage and can affect your credit score badly.

• Do not exceed the maximum allowed credit limit on your credit card.

• Do not miss the monthly payments and always make payments before the due date.

• Try not to keep only unsecured loans in your portfolio. If you have only credit cards and personal loans in your portfolio, your credit score can get affected. Always keep a mix of secured and unsecured loans in your portfolio.

• Do not apply for multiple loan packages at the same time as it can prove harmful to your credit score.

• Opt for a debt-consolidation facility as it can help you merge all your credit lines into one. It can help you manage the debts better and also help you enhance your savings.

Conclusion

Your credit score directly affects your application for a car loan, but that doesn’t necessarily mean that you will not get a loan if you do not have a good credit score. You can get a loan approved in such cases, but the interest rate associated with it can go higher. So it’s always recommended to keep a good credit score so that your application gets approved and you get the loan at competitive interest rates.