Who needs a co-signer for a car loan?

New or first-time car buyers are often surprised at being turned down for a car loan because they have no credit history, which has about the same effect as having bad credit. Lenders want to see that a borrower has a good record with previous loans and credit cards. Without a history of credit, a borrower represents a risk to lenders.

It’s a familiar “catch-22″ situation in that you can’t get a loan to establish credit without already having credit. So what is the answer?

Buying a car with a low credit score?

Having bad credit means that sometime in your past, possibly as far back as seven or ten years, you have had missed or late loan payments, repossessed property or cars, or have declared bankruptcy. You may also have an excessive number of credit cards with high balances. These factors are included in your credit history reports that come from three credit reporting agencies: Transunion, Experian, and Equifax.

Your entire credit history is summarized in a single number, called your credit score. Your score can be different among the three agencies. You can get your FICO credit scores at FICO Scores/Reports .

How do I get my credit reports and my credit score?

Whenever you apply for any type of credit or financing, a credit report is pulled from at least one of the three major credit bureaus. While there are hundreds of smaller credit bureaus around the country, virtually every credit bureau is affiliated with Trans Union, Experian, or Equifax. These credit bureaus collect and maintain information on the vast majority of Americans, but they are not affiliated with the government in any way. The credit bureaus are for-profit corporations that sell your personal information for money.

Is your score average? 

Even when you find out your personal credit score, most people wonder how they stack up with other consumers. What’s a good score? What’s bad?

First, let’s understand that you don’t have just one credit score. There are three credit bureaus in the United States – Transunion, Experian, and Equifax. Each has it’s own data about you and your credit habits. Each also has a slightly different formula for creating scores.

Therefore, your score is almost certainly to be different between the agencies. You can get your scores at FICO Scores/Reports .

Is it possible to get a car loan and buy a car with no credit?

The answer? Yes, under some conditions. Let’s explain.

It is a common situation, especially with young people who have never had a loan, never had credit cards, or never borrowed money for a car. Without a history of prior loans and payments, there is no credit history and no credit score, which is the number that represents credit rating.

In fact it is not quite sufficient to simply have a good credit score to get a car loan — or any loan. You may also need to have an established steady income (a job) and no excessive debts. You should have no recent bankruptcies or auto repossessions, which you wouldn’t be likely to have anyway if you have no credit. 

So how is it possible to buy a car with a loan when you have no credit record and no credit score?