Only Those With Top Credit Scores Getting Loans
MICHELE NORRIS, host:
The turmoil in the economy and the tightening of the credit market had made it difficult - make that very difficult - to get consumer loans. Car dealerships and mortgage lenders are only writing loans for people who have top credit scores and a whistle-clean application. That got us wondering, what kind of picture would an applicant have to present if they hope to secure a loan? For answers, we turned to John Ulzheimer. He is a credit expert at Credit.com. He joins me now from Atlanta. John, overall, how tight is the consumer loan market? What kind of credit score would someone need if they wanted to secure a loan?
Mr. JOHN ULZHEIMER (Credit Expert, Credit.com): Well, the consumer loan market is extraordinarily tight right now for many people. For some people it's not quite that bad. Really what lenders are looking for, it's this whole flight to quality. So, what they're looking for is essentially an application that has very little to no credit risk.
And the way they determine this, obviously, is through the credit report and the credit scoring system. So what consumers really, really need today in order to guarantee themselves not only approval, but approval with very, very competitive terms, are credit scores well into the seven hundreds, and I'm talking 750 and 780 plus.
NORRIS: And how do you actually get to that point? What kind of picture would you have to present?
Mr. ULZHEIMER: Well, you really need to have a very, very solid credit background in almost every aspect of the question. So, for example, you have to have clean credit from a performance perspective. So that means no late payments, no collections, no judgments, no charge-offs, no liens, something like that. And you really need to do well outside of the whole performance category. That's one of the assumptions that people have is that as long as I make my payments on time, that I've got perfect credit. That's absolutely not the case. So, for example, credit card debt, another huge factor in credit scores. You really need to have very, very manageable credit card debt to the point where, if need be, you could write a check and essentially wipe it out in one month's time.
NORRIS: When the car dealerships, for instance, announced their new credit guidelines - applicants needed scores in the high seven hundreds, around 770 - some of the California dealers were really worried. They said that that would eliminate 40 percent of their customers. This sounds very selective.
Mr. ULZHEIMER: That's extraordinarily selective, especially for a loan that's secured by an asset, meaning that if you don't make your payment they're just going to come pick up the car. I think 770 really is the credit crunch hitting Main Street, and it's the new target. A couple of years ago, you certainly did not have to have a 770 to get approved for anything. You could have easily qualified for automotive lending in the high five hundreds or low six hundreds.
NORRIS: So, what are three things that people can do to lift their credit score?
Mr. ULZHEIMER: Very simple. They can reduce their credit card balances to less than 10 percent of their limits. They can stop applying for credit unless it's absolutely necessary. And they can make sure that they never ever give any lender a reason to say something bad about them to the credit bureau such as, for example, late payments.
NORRIS: Do you get credit in some way, if I can use that word, if you make larger payments or make your payments not just on time, but even early?
Mr. ULZHEIMER: You don't necessarily get any bonus points simply because you paid 10 days before the due date versus five days. And you certainly don't get any bonus points because you chose to pay X percent more than the minimum payment. There is no facility set up to do that. And it's not necessarily a deficiency in the credit scoring system, it's really a deficiency in the credit reporting system, because there is no way for them to display that you're doing these types of things.
NORRIS: John Ulzheimer is a credit expert at Credit.com. Thanks so much for speaking with us.
Mr. ULZHEIMER: Thank you for having me.
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