Questions about building credit and auto loans

[GnatGoSplat]

I want to buy a new (to me) truck.

I highly doubt I could obtain any kind of auto loan because I only have 5-months of work history - was a slacker bum all through college and didn't start working till after graduation. I feel pretty secure in my job, but most banks and even online loan places like PeopleFirst.com want 2-3 years of work history. I can't even submit the online form @ PeopleFirst because I don't have any job history to put in it. I have heard it's a bad idea to apply for loans if there's any reason to believe it won't be approved - this is because failed loan attempts go into your credit history. Is this true?
How would I go about getting a loan with insufficient work history? Would I be able to get a loan with a parent as cosigner? If I have a parent cosign, assuming I make all payments on time, will this help me establish a good credit history?

I COULD always get a cheaper vehicle that I could pay for with my saved-up cash, but I've found a bargain on a newer vehicle right now, so I either have to jump on it now, or pass it by and wait till I can find a cheaper, older vehicle.

Assuming I COULD get an auto loan, in the not-too-distant future, how will this affect my ability to get a home loan? Does it look better to a loan company if you are paying off a loan on a vehicle? Let's assume I make all payments on time. Or does it look better if I have no obligations? I have been told by a good friend that having an auto loan looks good to a home loan lender, because it is an established credit history.

Right now, I either have excellent or ZERO credit history. I have 4 credit cards, and have NEVER had to pay interest on any of them because I pay the entire balance in full before the end of the grace period. Now this either looks like excellent credit, or zero credit. My friend again tells me that since I have paid my balance in full every month, I have not established a record of borrowing and repayment, so as of now I have NO credit history to speak of. Hence I will have great difficulty scoring a home loan.

If anyone knows more about this and can shed any light on the subject, please do!

 

[kranky]

<< I highly doubt I could obtain any kind of auto loan because I only have 5-months of work history - was a slacker bum all through college and didn't start working till after graduation. I feel pretty secure in my job, but most banks and even online loan places like PeopleFirst.com want 2-3 years of work history. I can't even submit the online form @ PeopleFirst because I don't have any job history to put in it. I have heard it's a bad idea to apply for loans if there's any reason to believe it won't be approved - this is because failed loan attempts go into your credit history. Is this true?

How would I go about getting a loan with insufficient work history? Would I be able to get a loan with a parent as cosigner? If I have a parent cosign, assuming I make all payments on time, will this help me establish a good credit history? >>



Is the truck being sold by a dealer? They will bend over backwards to try to get you a loan. It might have a high interest rate, but that's an incentive to pay it off as fast as you can.

Or, go visit a smaller bank in your town and talk to a loan officer about your situation. If you have a decent down payment that will help your chances. Take a current pay stub with you, and be sure you know what your monthly bills are because they'll probably ask. Don't wear a suit, but dress neatly.



<< Assuming I COULD get an auto loan, in the not-too-distant future, how will this affect my ability to get a home loan? Does it look better to a loan company if you are paying off a loan on a vehicle? Let's assume I make all payments on time. Or does it look better if I have no obligations? I have been told by a good friend that having an auto loan looks good to a home loan lender, because it is an established credit history.

Right now, I either have excellent or ZERO credit history. I have 4 credit cards, and have NEVER had to pay interest on any of them because I pay the entire balance in full before the end of the grace period. Now this either looks like excellent credit, or zero credit. My friend again tells me that since I have paid my balance in full every month, I have not established a record of borrowing and repayment, so as of now I have NO credit history to speak of. Hence I will have great difficulty scoring a home loan. >>



If you have four CCs and have used them, you have a credit history. Your record will show you paid "as agreed" - that's good. More importantly is how long you've had them. If one or two cards go back a couple years, I think you have a good shot at getting a loan for the truck. Your friend is wrong. Every time you charge something, you borrow. When you pay your bill at the end of the month, you repay. Just because you didn't drag it out over multiple months, it still counts.

Don't worry about a home loan. Pay your bills on time every month and you'll qualify. Remember, your home is the collateral and it can't be moved, which gives the bank confidence they'll get their money. They'll look at how much your bills are and what percentage of your income will be needed to pay off the mortgage. As long as you can afford it and your record is clean, no problem. Many, many people have a car loan plus a mortgage - it's not unusual.

 

[vi edit]

Oh Rossman, Oh Rossman, where art thou?

I'll a couple comments that I've notice from experience...

1. I was in college, making $25k a year, only a years worth of work history, and a limited credit history(credit cards), and I got approved for a $15,000 car loan at a fairly reasonable interest rate without needing a co-signer. You may be surprised at what you can get approved for. A bank will take a pretty decent chance on you if they think they can make some $$ off the deal. With all of the 0% financing deals running around being offered by manufacturers, a local bank might be rather willing to work with you to pick up some business.

2. A car loan does look good on your credit history if you pay on it over time, and on time. By this, I mean having a 3 year or 4 year car loan, and making your payments on time every single month until the payoff point is a very good way of boosting your credit rating. The more payments you make on time, the higher it goes.

3. Credit card companies reward people who make payments on time, but not paying off the full amount each time. Many say that you should take your credit card bill, multiply the minimum amount due by 10, and then pay that amount. It shows that you are responsible enough to make a payment higher than the minimum amount, but they still make a couple bucks off of you and reward you with a nice little credit rating boost. Sometimes eating a couple bucks in interest is worth the credit rating bonus.

4. Having a car loan show up as a debt on a credit report isn't necessarily a bad thing, especially if you have a couple years of on time payments behind it. The big thing is just your income to debt ratio. You don't want to have $20,000 wracked up in a 4 year loan, when you are only making $30,000 a year. It's hard to get approved for anything else since you credit line is just about maxed out.

5. I've found that local credit unions are much more generous in loan approval than many large, nationwide banks. My credit union lists me at the highest credit level that one can achieve. They use a custom credit approval process that takes into consideration things outside of just credit ratings spit out by the big three on a credit report. The credit union takes into consideration employment history, length of time banking with the credit union, whether or not you are a college grad, if you've taken loans out with them before, marital status, ect. I've only got a ~700 credit rating, but I qualify for interest levels that only people normally with 800+ credit ratings would be approved for at another loan institution.

6. As always, YMMV

 

[GnatGoSplat]

Thanks for the replies.
The truck is actually only $12,800 from a private party. I could put up to $8k down, but if I have to take out a loan, I was thinking of putting down $5k and borrowing the rest. Now this is if I decide I really want such an expensive (to me) truck. I had originally been planning to buy an inexpensive $5k pickup, but I had such a hard time finding a decently priced truck that I started looking at 2-3 year old ones with extended cab and 4x4.

As for the home loan, I was hoping to get into a new home at least by the end of the year if not sooner. I'm planning to be married by that time, so hopefully my significant other's income and much longer work experience will help get the home loan. However, I'll only have made 3-6 payments on the truck by that time, so will that be enough history to be helpful, or will that actually be harmful?

 

[Russ]

5K down on a 12.8K purchase? You're not going to have a problem.

Russ, NCNE