Understanding Your Customer’s Credit Scores

WHAT IS BAD CREDIT?

The recreation industry uses slightly different terminology, but if your customers have a FICO score between 600 and 650, they are considered to have poor credit. According to Credit.com, anything lower than 600 is typically what lenders view as bad credit.

However, when your customers come to your dealership to purchase an RV, boat or horse/utility trailer, they may hear a full set of lending terms to describe their credit qualifications. Customers with credit scores between 300 and 550 are “deep subprime”, 551 to 660 are “subprime”, 661 to 780 are “prime”, and 781 to 850 are “super prime”.

FINANCING OPTIONS FOR CUSTOMERS WITH BAD CREDIT

People with bad credit can feel hopeless and trapped. Your dealership could be denying half of your customers if you don’t have financing available for these subprime consumers.

Your lending partners will use consumer credit scores to determine eligibility for a recreation loan, how much they’re willing to lend, and what interest rate they will charge. With subprime credit, consumers could be denied loans or offered loans with higher interest rates.

Even though subprime financing has higher interest rates, many of these people are grateful for the purchase opportunity, especially if they have bankruptcy, bad credit, or other challenges in their history.

CUSTOMERS WITH NO CREDIT HISTORY

Unfortunately, another casualty of the bad credit range are customers with no credit history at all. One in ten Americans have no credit score or history, according to the Consumer Financial Protection Bureau.

Purchasing a recreation product could be your customer’s first opportunity to build their credit. Although these cases are relatively rare, it’s important to have financing options available for these circumstances.

CONSEQUENCES OF BAD CREDIT

Low credit ratings generally mean that your customers will pay higher interest rates when they want to purchase an RV, boat, horse/utility trailer or other recreation product. Consumers with bad credit are usually motivated by dealers that want to help them in some way. Helping your customers get financed for something they need and helping them get back on their feet financially is a win-win for both parties.

CAN PEOPLE IMPROVE THEIR CREDIT SCORE?

If your customers want to improve their credit scores, they’ll need to be proactive. When they know their credit score, they know what to expect from lenders and your dealership. They can also get a copy of their credit report and take care of the negative items and improve their credit score.

Another obvious but important way to improve a credit score is to pay bills on time each month. Bankruptcy and garnishments are usually more of a concern because they remain on a person’s credit report for several years. As a lender, we recognize people that are striving to establish a positive credit history following any negative activity, working to improve their financial behavior by learning from the past.