Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
(cross posted in Consumer Credit / Credit Cards)

OK I applied at 3 banks locally here and they all called back the next day. One was a credit union (accepted) and the 2 others were banks (1 up 1 down).

$10,000 loan for a used Ford Explorer (2001-2003) paying $5000 upfront, using the loan to pay for the rest. 24 or 36 month term.

Why would one accept and one deny?

Details:

I have a late payment from August 2004 on my report.

My income has increased significantly since last year.

I haven't applied at my own bank, but they denied me last February.

About 3 - 3.5 years ago, I had some trouble and had some 60 and 90 day late pays.


Doug
Print the post Back To Top
No. of Recommendations: 2
Sixty-ninety day late pays are the kiss of death on a credit report. Used car financing is ironically harder to get than new car financing - more risk for the bank on a used car. The denial less than a year ago also hurts you Actually with you putting 33% down I'm surprised you were denied. What is the market value of the vehicle your looking at?

Do you know your FICO score? I'd bet your midscore is below 640. What interest rate are you being quoted? Capital One "No Hassle" is an excellent source for car loans, they do prime and subprime in the same application. Interest rates, even on subprime are good.

To answer your question the reason one approves and the other denies is they have different underwriting requirements. The bank that approved as easier or "looser" terms for credit underwriting. Almost all auto loan underwriting is computerized.

FWIW - your income has nothing to do with having credit extended to you (up to a point).
Print the post Back To Top
No. of Recommendations: 1
Milligram's response was excellent. I'll just quibble with the last remark, that income has nothing to do having credit extended. It is in fact the first filter I use in underwriting. If the applicant can't afford the payment, many lenders will not make the loan regardless of credit quality.

The four C's of underwriting are capacity, character, collateral and commitment. Most lenders do not want to see total monthly obligations exceed 50% of gross income. Conservative lenders, and yes there are still a few of them, want total outgo below 40%.

Good post, Milligram.
Print the post Back To Top
No. of Recommendations: 1
""About 3 - 3.5 years ago, I had some trouble and had some 60 and 90 day late pays.""

<followed by:>

""I have a late payment from August 2004 on my report.""

<followed by:>


""$10,000 loan for a used Ford Explorer (2001-2003) paying $5000 upfront, using the loan to pay for the rest. 24 or 36 month term.""


Look at this from the lender's perspective. You have applied for a 24-36 month loan after spelling out that in the past five years, you have not been able to go that long without missing a payment. The fact that your income has gone up does not necessarily affect your ability to service a loan. There are people with 6 figure incomes who struggle to make their minimum payments.

Something about your total picture has turned them off. I'd bet the late pays weigh heavily considering the length of the loan in question. Post some more info about your whole financial picture and maybe we can do better.

Polywilliams




Print the post Back To Top
No. of Recommendations: 1
Something about your total picture has turned them off.

I, for one, think it's very unfair for the third application to be turned down. After all, two other loan applications have been approved. Why can't he get the third loan approved? It's so unfair.


What's the point of this thread? Your credit sucks and you know exactly why. You don't need to ask. You have two loans approved. Take the best one, pay it on time, and quit your complaining.
Print the post Back To Top
No. of Recommendations: 0
Why would you apply for 3 loans on the same car? IINM, those count as "hard hits" on one's credit report, in and of themselves, bump your FICO score down some, and can serve up a red flag to a lender.
Print the post Back To Top
No. of Recommendations: 1
those count as "hard hits" on one's credit report, in and of themselves, bump your FICO score down some, and can serve up a red flag to a lender.

It is my understanding that multiple applications for the same purchase within 1 week count as one hit.

Experts?

GeeB

Print the post Back To Top
No. of Recommendations: 1
It is my understanding that multiple applications for the same purchase within 1 week count as one hit.

I've seen 2 weeks as the time period where all credit applications for the same purpose count as one.
Print the post Back To Top
No. of Recommendations: 1
I've seen 2 weeks as the time period where all credit applications for the same purpose count as one.

Be careful. "Same purchase/purpose" is only relevant for car loans and mortgage. I just don't want to give anyone the wrong idea.

Also, I think the number of days that its applicable vary between the two concepts. I'm sure a quick googling can find it for ya.
Print the post Back To Top
No. of Recommendations: 2
Why would you apply for 3 loans on the same car? IINM, those count as "hard hits" on one's credit report, in and of themselves, bump your FICO score down some, and can serve up a red flag to a lender.


All inquiries within a 14 day period are treated as single inquiries, allowing consumers to shop for loans.

The OP applied with three different lenders to see what they would do. I would imagine the two lenders that did approve him offered him somewhat different terms.

Shopping for a loan or any other sort of financial service should be no different than shopping for anything else. The FICO scoring model recognized that fact and corrects for it by the way it handles multiple inquiries in a short period of time.
Print the post Back To Top
No. of Recommendations: 2
http://www.equitybanker.com/credit/index.asp

A very good discussion of the fico model. I'll just quote the relevant paragraphs. The entire article is worth reading.


"FICO has changed the way it factors credit checks, inquiries. These changes should minimize the «negative» effects that aggressive rate shopping or the normal mortgage process can have on a mortgage applicant. In the new Beacon version, the deduping process has been expanded beyond seven days. One variable counts the number of days within 365 days of scoring. If there has not been an inquiry, the deduping mechanism is not activated. If there is a consumer originated inquiry within the past 365 days from mortgage or auto related industries, these inquiries are ignored for the first 30 calendar days from scoring; then, multiple inquiries within the next 14 days are counted as one. Each inquiry will still appear on the credit report.

Scores should not change significantly because the variable in the model using inquiries contributes less than 5% of the predictive power of the model. According to Equifax statisticians, an average of 5% of the credit reports in the Equifax consumer credit reporting database (over 200 million consumer files) will see a change in score due to this. Fewer than 5% of those will see a change significant enough to effect a loan decision. "

Print the post Back To Top
No. of Recommendations: 0
Why would you apply for 3 loans on the same car? IINM, those count as "hard hits" on one's credit report, in and of themselves, bump your FICO score down some, and can serve up a red flag to a lender.

Wrong, you can apply for 100 car loans just as long as:

1) They are in a 14 day period
2) You end up buying a car

Then those 100 "hard hits" count as one - with credit extended. not a bad thing on your credit report (although your FICO will still take a small dip for the hard check and a bigger, but still minor dip for the new loan with no repayment history)

Same for home mortgages but I can't remember for the life of me if the window for a home loan is 30 or 45 days.
Print the post Back To Top
No. of Recommendations: 0
GeeBEENC you are correct.
Print the post Back To Top
No. of Recommendations: 0
I've seen 2 weeks as the time period where all credit applications for the same purpose count as one.

For auto loans only. The window for home loans was extended to 30 or 45 days. If you're shopping unsecured debt (e.g. credit cards) than each hit is a hard hit. This is one of the big reasons why credit experts advise against open a charge account at a store to get the 10% off on your first purchase and pay it off. All of those hard hits and opened credit no history slowly chip away at your FICO score.

It's not that complicated - but it does have it's twists.
Print the post Back To Top
No. of Recommendations: 0
What kind of relevant info from me would help the discussion?


Doug


Print the post Back To Top