loan effects on credit score

Discussion in 'Credit Talk' started by lashgo, May 25, 2012.

  1. lashgo

    lashgo New Member

    Hi there, and thank you in advance to anyone who reads this and has any input.

    My situation is this:

    I make 36k/year
    I have 50k in student loans
    I have 15k in credit card debt
    my credit score is 695-705 currently.

    my fiance needs to buy a car and he has poor credit (550...working on settling old debt collections) I have been approved for a 20k auto loan with him as a co-applicant and am considering going forward with it.

    my main concern is how much this would effect my debt-income ratio and my subsequent credit score. I don't want to compromise my chances of getting approved for my own auto loan in the future. We also are definitely thinking about a home loan in the near future. With us not knowing exactly how long it will take for his score to come up and be useful (both with his actions and score reporting), I just don't know if it's worth it to possibly risk my score at this point.

    Does anyone have input on this issue? We want to have some kind of asset (a nicer, resalable vehicle) but should we just pay cash for a much "worse" vehicle?

    Thank you again!
  2. jam237

    jam237 Well-Known Member

    Because INCOME isn't included in the credit reports, D-I isn't something that can't be scored from the credit report. Now, the lender reviewing the scores report from the CRA could from asking what the income is on the application, consider that in the underwriting process.

    There would probably be a small "new account" hit to the score which would begin to slowly start to negate back as the first few payments are being made.

    Remember that as soon as any car is driven off of the lot, it depreciates below what you've paid for it.

    Depreciation Infographic: How Fast Does My New Car Lose Value? -

    I found the above info from Edmunds that shows you how at mile 1 on the odometer, the car loses 9% of it's total market value; 19% by the end of year 1 with 15,000 miles, 31% by the end of year 2 with 30,000 miles, 42% by the end of year 3 with 45,000 miles, 51% by the end of year 4 with 60,000 miles, and 60% by the end of year 5 with 75,000 miles.
  3. BCOHEN2010

    BCOHEN2010 Well-Known Member

    Yes, I do have some input on this issue, but it's probably not what you and your boyfriend want to hear. A car is simply a machine which takes you (and your stuff) from point A to point B, and not a fashion statement, or something to impress snobby neighbors/friends/co-workers with. That being said, you should look to minimize this expense as much as possible, while still ensuring that you get something reliable.

    Therefore, the smartest thing to do would be to buy a used car in the 5 to 9 year-old range (Japanese) or 3 to 5 year-old range (domestic) from a reputable dealer, and preferably with some kind of warranty remaining. For example, you could buy a used 2004-2006 Toyota Corolla from a Toyota dealer with the certified pre-owned warranty for less than $10,000 and you would still have a reliable car without getting into a lot of debt which will just be gobbled up by depreciation anyways.

    Remember that in the future, when you are looking to buy a house, the mortgage underwriting will consider ALL of your debts and incomes in order to decide if you are approved, and if so, how much you qualify for. So having a large monthly car payment could result in NOT being approved for a home loan in the future. So buying a used car with a much smaller payment would be very wise from this angle too, in addition to of course saving you both a lot of money in interest, higher insurance, depreciation, etc.
  4. JoshuaHeckathorn

    JoshuaHeckathorn Administrator

    Pay cash if you can for a used vehicle, or finance a used car with a small monthly payment that doesn't affect your ability to pay down your other existing debt. With $50K in student loans and $15K in credit card debt, the last thing you need right now is a $20K auto loan.

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