gusmahler

My credit score is fairly low because of a high debt. However, my income is high (high enough that I can pay off my debt within 12 months).

I realize that the best thing to do would be to wait a year until my debt is paid off and my credit score increases. However, we will have to buy a car soon because my wife is losing her company car.

How much weight do the credit companies put on income versus credit score?

Pk14

Your credit score is a combination of the number of accounts (non-revolving (home mortgage) and revolving (credit cards)), amount of debt, your payment history (how many times 30, 60, or 90 days late + any liens or judgements) and how many times your credit records are accessed in recent history.

As you point out, if you can clear off all your debt in the next 12 months, your scores will rise. Get a copy of your credit report from the 3 major bureaus and review them for accuracy. (They do make mistakes and the burden is on your shoulders to point it out). The fastest way to improve your scores are to 1st pay down to below 50% of available credit on all outstanding card balances, rather than try to close out a single one.

A bank will look at your debt to income ratio for loan approval, however you will be offered a rate dependent on your credit score from the credit bureaus. As an alternative, if you have equity in your house, you may want to consider a home equity loan to pay off the cards, wait ~45 days for it to show on your credit report and then go car shopping. The higher interest rate on the home equity loan can be offset on your taxes (but will probably be less than the credit card rates).

Be careful about going the e-loan route in shopping for a rate when your credit score is close to the line between Tier 1 and 2 (or 2 and 3) - multiple banks competing for your business sounds greeat, until you realize that they are all pulling credit reports on your credit and will drive your nice 740 number into the mid-600s.

Hope that helps - in the end though - find a finacial counselor to give you professional advise from a tax and loan perspective to help you do what you need to get done.

Pk

Pk14

One other option to consider (not what you want to hear on the RX-8 board) - buy a reliable beater in cash to tie you over for 12 months until the scores improve (by that time you'll be in a position to reap the benefits of the '05 changes to the -8 that the '04 owners have to refer to as loving quirks about their '04s!)

gusmahler

I was under the impression that multiple credit report requests within a 14 day period is treated as a single request, to allow consumers to shop for loans.

Anyway, your summary was helpful. Your advice is what I feared, that I shouldn't have trouble getting a loan approval, but I will have trouble getting a good rate.

One other question though: What are the limits of Tier 1, 2, and 3? I had never heard those terms used before.

Pk14

Lending institutions have different labels for tiers (some use 4, some 5) and there isn't a consistent number across labels (One is 740 and above for Tier 1, others might be 700). Here is Wells Fargo's definitions: http://autofinance.wellsfargo.com/creditQualityPage.jsp

Edmunds has a page explaining their breakdown.

An easy way of figuring out where you stand is to go into your favorite credit union and work with a loan officer to see how they will assign you to a tier / rate. Just be mindful about how many credit inquiries have been made in the last month.