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Knowing how lenders assess your credit helps you better understand what to expect…and how Ezee Credit can assist you.

HOW TO ASSESS YOUR CREDIT

There are several factors that most lenders consider when assessing a person’s credit for a bad credit auto loan or lease. These factors vary in importance from lender to lender. These factors include:

• Your credit bureau report including any bankruptcies or proposals,
• Your Credit Score,
• Your debt service ratio,
• Your job and residence stability, and
• Whether you have any co-applicants.

We will discuss each of these in more detail below so you can evaluate your own particular circumstances.

CREDIT BUREAU REPORT

There are three primary Credit Reporting agencies used in Canada: Equifax, Trans Union and Experian. Equifax is probably the most recognized agency in Canada.

Your credit bureau will record reported credit activities, including auto loans, credit cards, credit lines, loans and so forth as well as credit inquiries (how often you have shopped for credit). It also records secured loan registrations, collections and judgments. Based upon this information, a lender will determine their impression of your credit worthiness, including how desperately you are seeking credit.

Bankruptcies and Proposals are reported on your credit bureau for seven years from date of discharge in Ontario (longer if a second time or more). When properly reported, the bureau also indicates which financial obligations were included in a bankruptcy or proposal as well as their discharge date. While a bankruptcy or proposal may well reduce or eliminate your credit worthiness for a period of time, it may also be seen as positive to some lenders (such as Ezee Credit) if it shows you have dealt with your past debt and have the capacity to handle new debt obligations.

You can request a copy of your own credit bureau from one of the reporting agencies for a reasonable fee. This is often advisable to ensure your credit bureau is accurate as well as to remind yourself of items you may have forgotten about before seeking more credit.

YOUR CREDIT SCORE

There are several credit scoring methods. The most common method is based on the Fico score model developed by Fair Issac & Co. Different reporting bureaus often call it a custom name (e.g. Equifax calls it a Beacon Score). The score is derived primarily from your reported credit history and is intended to consolidate into one number your credit worthiness.

It incorporates factors such as past defaults, number and timing of credit inquiries, recently reported activities, timeliness of payments, completed financing arrangements, and whether your balances are above approved levels. The better the credit, the higher the score. Some lenders will give automatic approval on a car loan based on minimum score levels. The lower the score, the more weight the other factors discussed here are given by lenders. You can request a copy of your credit score from the reporting agencies for a reasonable fee.

DEBT SERVICE RATIO

Lenders evaluate your financial ability to pay for your auto loan or lease by comparing your total monthly payment obligations, such as rent or mortgage payments, credit card and loan payments, to your gross monthly income (before income taxes). Guidelines vary but lenders often try to have a gross debt service ratio below 40%.  Alternatively, some lenders look at your payment to income ratio which is the percentage based on your bad credit auto loan payment to your your net (or gross depending on the lender) income. Obviously, the lower the percentage in both cases, the better.

JOB AND RESIDENCE STABILITY

Another factor certain lenders consider is your job stability or residence stability. The longer you have worked at one place of employment increases your odds of continuing to be employed there which is considered advantageous. Steady full time employment income is viewed as the best source of income. Secondary part time jobs, or other non-permanent sources of income, are often given less weight as they are less reliable and some lenders disregard them completely. Other sources of income, such as pensions and disability income, are viewed poorly because they may terminate on certain conditions and because there are restrictions on lenders being able to garnish these types of income if you default.

Many lenders have minimum job stability requirements before approval. Job changes in the same industry, or line of work, are often viewed as the same employment for this purpose.

Another factor considered by some is residence stability. This is especially important if a person's credit is very bad as lenders are worried about people moving again (or "skipping" or becoming a "flight risk") without paying them. When there are residence changes, stability in a certain area is still considered better than moves over long distances unless there are good reasons for a more permanent relocation.

AVAILABILITY OF CO-APPLICANTS

A co-signer(s) can add strength to your application and increase your chances of approval on better terms and at a lower interest rate.  Co-signers who will be using the vehicle (e.g. wife or partner), even if not the primary driver, and/or other significant people in your life (e.g. parent) are considered the best co-signers (depending upon their circumstances).

Co-signers such as friends or acquaintances, even if they have very good credit, are often not viewed as enhancing your application because they are not the primary driver or part of your family unit and therefore not as inclined to pay for the vehicle if you were to default. These types of co-signers are sometimes known as "straw man" or third party financing.

USING EZEE CREDIT'S EXPERTISE

Each lender views these and other factors with more or less importance. And Ezee Credit has its own credit evaluation system.

With its years of bad credit experience, and its ongoing relationship with lenders specializing from bad to good credit, Ezee Credit can help assess which lender is best suited for your type of credit challenges and circumstances. We have a good idea what interest rate you will qualify for, how much down payment will be required and how much a lender will finance on which vehicles even before applying to them. This lets us target the right lender(s) without over-shopping your credit. And often times, we don't need to look anywhere else as the preferred choice is Ezee Credit using the advantage of a shorter term lease.