Recent reports have determined that borrowers with lower credit scores are able to achieve more financing now than they have in prior years, according to the Associated Press.
Despite tightened lending criteria, it appears that the auto industry is softening their stance on credit scores and loans, making it easier for Americans with low scores to purchase a car. Citing data from CNW Marketing Research, the AP reports that individuals with credit scores ranging from 620 and 750 have seen loan approval rates climb to 82 percent, a 12 percentage-point increase from one year ago.
Only about 60 percent of Americans with credit scores below 620 - considered subprime borrowers - have been able to secure auto financing in previous years, but analysts say that this percentage dropped by 5 percent last year and rose 9 percent in 2010. Despite the increase in lending, subprime borrowers will still be required to put down sizable down payments and pay higher rates than those with stronger credit scores.
"A couple of months ago, it was horrible," IHS Global Insight automotive research analyst George Magliano told the AP. "The least blemish on your credit report and you got nothing."
Changes in auto industry lending standards may reveal that banks are feeling more confident in the economy and are trying to boost business. This may be especially true for those financing auto loans, as the automobile industry accounts for 3 to 5 percent of the nation's gross domestic product, the AP said.
Although the shift in lending is positive news for Americans who may be struggling financially, finding auto insurance at low rates may still pose a problem. More states use credit scores to determine insurance premiums and rates, citing that those with higher credit scores tend to file fewer claims and deserve lower rates. A recent state Supreme Court decision in Michigan granted insurers permission to assign rates to consumers based partially on their credit score. This removes the state from the remaining four that have completely or partially banned the practice of factoring credit scores into assigning rates - California, Massachusetts, Hawaii and Maryland.
Individuals can increase their chances of receiving the best rates on mortgage and auto loans, credit cards, and other types of financing by paying their bills on time, refraining from using too much available credit, and limiting new applications for credit - all of which will boost their scores.