Having no credit is like having bad credit when it comes to auto financing. Many first-time borrowers think they will have a high credit score if they have never defaulted on a loan or missed a payment. In fact, credit score is a measure of a lot of factors combined, including length of credit history and total volume of debt paid off in the past. When you have no significant history of installment loans, not just credit cards, you will see your score is much too low for most car loan lenders.
#1 Seek a Low Limit Loan
If you have a short credit history, this is likely your first auto loan. The first loan is the hardest to get, but once you pay it off you will find you have a much better chance of getting a good loan in the future. As such, you will want to pay the loan off as fast as possible. It can be a challenge to do this without electing monthly payments that are too high. Instead, elect a much lower-limit loan. This means you may have to buy a less expensive car, but that should be sufficient for your very first installment loan.
#2 Supply Proof of Income
Income can go along way to creating security on debt. Supply proof if income in the form of a paycheck stub or tax receipt. If you have no income, the fact you have no credit becomes a much bigger problem. This is especially problematic for students who need cars despite having a short credit history and no income during the year. Students who have summer jobs can use this income to show ability to pay. Otherwise, a cosigner like a parent or other responsible party with a high income may be necessary.
#3 Save for a Down Payment
The larger your down payment, the smaller your loan limits, and the easier it is to get a loan. In fact, some car dealers will extend loans to individuals with no credit history at all if their down payment is large enough. Save at least 30% down if you do not have a car to trade in. If you are trading in a car, you may use this as part of the 30%. The value of your trade in, therefore, will help you determine the total loan limits you should seek.
#4 Use Character References
Your credit score will eventually be like a reference in itself. It will show how responsible you were with past debts, providing an indication of how responsible you can be in the future. When you do not have a credit report, you need to provide other references that can vouch for you. A landlord is a great option since paying rent is very similar to paying a car loan each month. You can also use your employer as a reference. An employer can verify you have good stability at your job by showing you have received promotions, raises and other sings you are productive and responsible.