By on May 14, 2014

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New technology is allowing buyers with no credit score – due to a lack of credit history or a personal bankruptcy – to get vehicle financing via examination of documents like the payment history of their cable or cell phone bill.

Automotive News reports that companies like Equifax can provide information for customers who have been diligent about paying their bills, even if they have not yet tapped traditional lines of credit.

Lou Loquasto, who runs auto finance for Equifax, told AN

“One thing that Equifax and others have is nontraditional credit. Equifax can tell a lender, ‘Hey, this customer has a $200 cell phone bill, they’ve got $400 in utilities, they’ve got $100 in cable, and they’ve had this for four years. They’ve paid perfect.”

Of course, there’s also the question of whether this initiative is just a way to issue more subprime loans, which can then be securitized and sold to yield-hungry investors. That’s usually been the big fear with extending credit for auto loans, but an Equifax economist told AN that there are other ways of looking at data over a longer timeline

“They’re not subprime individuals, they just have a subprime credit rating…There’s a lot of connotations with that, and I think it’s wrong, particularly after what we’ve seen with the recession, where a lot of people fell on hard times. Bad things happen to good people, and a lot of it is out of their control.”

A TTAC source at an OEM captive finance arm concurred with this assessment, telling us that they have spent a fair amount of effort in retaining customers who once leased their vehicles, but had fallen on hard times during the recession. Their less than stellar credit scores were the result of circumstances, rather than delinquent payment histories, and getting them back into a new lease was a goal for the captive.

Even so, a healthy dose of skepticism is required when taking a look at subprime auto loans. A February report by RatingsDirect shows that both losses and delinquencies are on the rise, while the market remains hungry for these types of loans. As a result, underwriting standards are changing as more and more consumers are being approved – including many who might not get financing in the first place. All of this adds up to a riskier loan pool, and the rise in losses and delinquent payments isn’t expected to fall any time soon.

 

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49 Comments on “No Credit Score? Show Your Cable Bill, Get Approved...”


  • avatar
    thelaine

    Awesome. I’m getting the new Great Wall AK-47 sedan.

  • avatar
    Felix Hoenikker

    But this time it’s different! Sorry couldn’t help myself.

    • 0 avatar
      CapVandal

      Why is it different?

      Because it is highly unlikely that anyone in our lifetime will buy an investment grade trench of a CDO that fails.

      Why?

      1. I have looked at the prospectus for couple of Americredit/GM CDO’s. The investment grade tranches looked very solid. Why? Plenty of subordination.

      2. The worst types of CDO’s will never sell again. For exampe, CDO^2.

      3. The rating agencies had their come to Jesus moment and downgraded the hell out of everything. Like the US, for example. Another goof up and they are out of business for good.

      4. No one buys anything now on blind trust. Until everyone who had any exposure to 2008 is retired or dead. Believe it or not, there were CDO’s in the 1920′s. http://www.nber.org/digest/may10/w15650.html .They disappeared for 30 years, and toxic ones for 70 years.

      Are their systemic financial risks? Sure. Just not the same ones.

  • avatar
    sirwired

    I don’t really agree with the latest wave of sub-prime, but I think this sort of underwriting holds real promise.

    The whole purpose of credit underwriting is to determine who is most likely to pay off their loans as agreed, and extend credit to them. If somebody simply does not have or use credit, but has the means to pay it back, and a history of paying their bills on-time, why relegate them to sub-prime trash rates because they simply don’t have any recent loans on file?

    From the perspective of having to pay a hefty check on-time every month, a car loan is little different from a rent check, power bill, etc. I see no problem with using non-loan monthly payments as part of “credit history”.

    And I also have no problem with giving a loan to those that went through bankruptcy or other difficult for temporary reasons which no longer apply. You go through BK for medical bills for something you’ve now been cured of? You get foreclosed on because the builder of your new house took the money and ran? Yeah, some creditors took it in the shorts in the past, but why should that affect new credit if you now DO have the ability to pay?

  • avatar
    Spartan

    “They’re not subprime individuals, they just have a subprime credit rating…”

    Umm, I beg to differ, as do most banks that lend money.

  • avatar

    A lot of folks subprime credit ARE subprime individuals. I can personally attest to this as I spent years attempting to finance these…folks.

    Don’t forget – its not a repo; I gave the car BACK!

    • 0 avatar
      CoreyDL

      Yeah that’s what I’m thinking. What % of these subprime FICO people are responsible and worthy?

      I’m guessing <50%.

    • 0 avatar
      jrasero23

      I agree. I wouldn’t word it exactly as you did but I believe even if you haven’t established credit you shouldn’t be given a loan. If you want the loan work on your credit just like you worked to save up in order to buy the car.

      I think this is a start to a slippery slope. Its one thing to be able to pay a $80 cellphone bill another thing to miss a $400 car payment or $1500 mortgage payment. Yeah they can afford the small payments but can they handle and budget for the larger purhcases

      • 0 avatar
        CapVandal

        They have established credit. Just not traditional FICO score based credit.

        FICO scores are not perfect. In fact, they leave a lot to be desired.

        Since we live in a world of effectively ZERO privacy, there is so much data on individuals that it would be silly to think that there aren’t alternatives that are highly predictive. Equifax is one of the largest credit bureaus in the world, and have enormous amounts of data and now they have tools to analyze it in more detail and in different ways than in the past.

        The three C’s of credit are character, capacity, and collateral. Car loans have a significant amount of collateral. Borrowers need to bring in more than a cable bill — they need a pay stub as well. And if they have a job, they need a car. And will consider it a necessity and give it priority over a cell phone bill or cable bill. No one has direct or indirect knowledge of a borrower’s character — all they have had since the demise of the small town banker are proxies for character. The FICO scores were as good as it got until they weren’t.

        A FICO of 680 and above is prime. 620 and below are subprime. If you spend a day with 100 people with FICO scores of 550, isn’t it likely that you could find 10 that would meet common sense criteria for a car loan? 20? 30? 5? The point is that subdividing the FICO based subprime universe into segments and loaning money to the best makes excellent business sense.

  • avatar
    Pch101

    This is yet another one of those stories that is going to be misinterpreted by many of those who post here. (I can see that they already have a head start.)

    Currently, FICO scores only include loan payments, such as mortgages, car loans and credit cards. They don’t report on other payments that aren’t loans, such as rent and cable bills.

    There is already a legislative effort being made to expand what is included in a FICO. One could see that as an effort to be more accurate (since more information is included) or intrusive (ditto), depending.

    The story above sounds like an end-run for something that may already eventually happen, namely lenders having more data that they can use for determining ones creditworthiness. It’s a Big Data story, which will help some consumers and hurt others.

    • 0 avatar
      sproc

      Probably a good thing, but can be a double-edged sword. Adding things like utilities expands the data set, but also greatly increases opportunities for errors (and we know how awesome utilities like cable companies are about account accuracy…)

      Until correcting credit records gets much simpler, responsive and transparent, I’m dubious this will change much.

      • 0 avatar
        TheyBeRollin

        I totally agree. While cable companies are notorious for really awful account accuracy, that has nothing on the existing rate of credit report errors (and the data is coming from a bank with theoretically-relatively-precise record keeping). Until we have a completely transparent way to see and get corrections on them with no expense on our part, this will simply make the borderline-criminal credit reporting agencies even more money as everyone is forced to pay them for their report regularly just to keep on top of all the disputes.

    • 0 avatar
      FreedMike

      Some utility companies already report payment histories on credit. DTE Energy in Detroit is one of them. Make sure you pay your electric bill on time!

  • avatar

    One of my friends asked me to take her car shopping (since I’m an expert) and I found out she had a “0 credit score” when trying to buy a Rav4. A “0″ is possible when you have no established lines of credit. It’s worse than – or as bad as – being subprime.

    I recommended she get some credit cards and start building her credit immediately, but she’s stuck in her ways of not having any credit cards, so unless she gets her mom or someone else to cosign, she’s assedout.

    And before anyone tells me about the beauty of not having credit cards: you tell me how you are supposed to rent hotels, rent cars, buy airfare, or pay for “emergency” situations as they occur.

    You simply need discipline to use them. Take out what you need, pay it off at the end of the month.

    • 0 avatar
      brettc

      I’ve read about people with no credit cards. Apparently it is possible to go through life without them, but it’s a huge PITA. My wife and I have several credit cards for different purposes. We use them regularly for the rewards they offer, but we pay them in full every month. We were both taught growing up to not buy things you can’t afford, which is what we do.

      So for the anti-CC people: get even one card and build a respectable credit score by not treating it like an infinite ATM and paying it off in full every month. Life will be so much easier, especially if an unexpected expense comes up (although that’s what savings are for).

      • 0 avatar
        anti121hero

        It’s not like people without cc’s live in the dark ages. A lot of us were just raised differently or its just a matter of circumstance. Most people I know don’t have credit cards. I dont, and I’m happy this way. I budget and save my money.

    • 0 avatar
      jmo

      “rent hotels, rent cars, buy airfare, or pay for “emergency”

      Debit card? I travel for work and almost every hotel front desk and car rental desk has a little sign listing their debit card policy.

      • 0 avatar
        sproc

        True, but using a debit card usually involves a significant pre-authorization (I’ve seen $500 or more for rental cars). Additionally, many credit cards offer supplemental insurance, not to mention cash back or other rewards.

        Even if you use debit for day-to-day purchases, a credit or charge card is vastly simpler to use when travelling. Even for those who are loathe to use a credit card, I would suggest having just one card and just not carrying it in your wallet unless you’re travelling.

        There are also significant differences in fraud protection/liability between debit and credit, but that’s a whole other conversation.

      • 0 avatar
        TheyBeRollin

        Yeah, you can do it if you maintain a large balance in your bank account at all times. I did until I was 25 when some crazy company offered me a no-annual-fee card with a supposed “pre-approval” that turned out to be true. Nobody was handing out cards that weren’t “student” cards back then unless you had a cosigner with stellar credit that I didn’t have access to.

        The student cards were being handed out like candy when I was a freshman, but I was too young to sign and by the time I was old enough I already knew better after watching the trouble my fellow students got into with them.

        The downsides to using a debit card daily are huge and that’s why I recommend getting a credit card with any kind of decent terms at one’s first convenience. Banks will play the debit laws to their maximum favor if you dispute something. If someone steals your card number, you’d better be prepared to deal with it for the long haul or write off any losses up to and including overdraft fees. That money is gone until and unless the bank rules in your favor, which could be months. Large holds that take days to weeks to clear are not uncommon, so be sure you have a huge balance (in the thousands, depending on usage) if you’re dead set on not using credit cards (risky as hell). Above a certain amount you might be SOL, too. Read your fine print…

        Credit cards are simply the best way to pay day-to-day and travel expenses, especially if a card or the number leaves your physical possession (including online use). Even with a small annual fee, you can almost justify it based on the benefits alone (this is the cheapest rental car insurance you can get by a huge margin). Anyone can get a $40/year 1.5% cash back card these days; all you have to do is have money in the bank before you use it and pay it off every month. If you can’t manage this with a computer and/or a cell phone app, you can’t manage money at all. This is nothing like the old days of monthly billing and writing a cheque for each one.

    • 0 avatar
      raresleeper

      I disagree, BT.

      It’s a hell of a lot easier to build a decent score starting from zilch than it is working with derogatory accounts on your score for the next seven years.

      She needs a cosigner for her car, one preferably with a strong credit score, and so long as she makes those payments, well… here come the credit card offers in the mail (bring forth the hotels, rental cars, et cetera).

      Or there’s the credit builder loans from the bank. They’re small- I guess about 1K or so, +/-. Pay it diligently, never paying minimum, and (voila) you’re building credit.

      I’ll take a 0 credit score over a 500, 600, or even a 640 any day. Good luck making that number pretty overnight.

      Oh yeah, and you can rent a car without a credit card, but good luck jumping through their hoops.

      If you go to a car rental agency, and you don’t have a credit card, have fun. Uhhh… they hate you :)

      • 0 avatar

        A credit card is an absolute necessity in modern society.
        A debit card can have “holds” placed on funds when renting a car. You don’t want that.

        No one’s saying that you’ll be derogatory if you use it right.

        • 0 avatar
          TheyBeRollin

          They technically put holds on credit cards, too, but that money doesn’t exist until/unless they actually charge it. It does lower your credit limit, but your limit will probably be so much higher than you need that it doesn’t matter.

    • 0 avatar
      FreedMike

      Tell her to get a secured credit card. She opens a bank account with a small balance, and the card reports on her credit. The account secures the credit card. Have her use it to pay for small bills every month (gas/electric), pay off the balance monthly, and before you know it, she’ll be getting other offers.

      This is the route I had to take after my divorce. The terms aren’t great, but once you establish a good credit rating, you can trade up to a card with better terms. You also get the deposit back if you close the account on good terms, or get upgraded to an unsecured account.

      It amounts to buying a credit score by overpaying for your interest, but since the credit limit is small (typically $500 or so), the actual dollar amount you overpay isn’t all that much in the scheme of things.

      • 0 avatar

        Freedmike – she’s actually in a good position. Her credit has nowhere to go but UP. If I was her, I’d get some cards with $0 annual fees and use them to pay all my regular bills and then pay them off monthly. After a few months she’d be ready to buy a car.

        But – it’s an absolute disappointment to not be able to qualify for anything, especially when you’re in need.

        Even more disappointing when HYUNDAI or KIA aren’t able to easily put you in a car. They’ll do ANYTHING for business.

        People are being warned – rightfully so – not to cosign for others – especially student loans, car loans and credit cards. This way, no one else will be liable for the failures of the one.

        • 0 avatar
          CoreyDL

          However – most regular bills -cannot- be paid with a card.

          I have the following each month:

          Mortgage
          College loan
          Electric/Gas
          Phone
          Internet

          Only the phone and internet bills are subject to credit card payment. Together, they’re minor expenses. The bulk of my credit card usage is online shopping/grocery/gas.

    • 0 avatar
      CoreyDL

      I agree. I know a 25 year old who hasn’t used a credit card ever. “Oh well I just use my debit card.”

      And I say, “Well that doesn’t count toward credit, so good luck getting a car loan, or a mortgage, or anything else.”

      “I would spend too much money if I had a credit card.”

      “You use it instead of your debit card or cash, pay off every month. Very easy.”

      People annoy me.

      • 0 avatar
        TheyBeRollin

        I keep teaching other Millennials how to do this and it blows many of their minds. I just tell them not to use it if they don’t have the money already set aside to pay it off, then pay it off monthly.

        Of course, I bet their parents were as bad at managing their money and credit as mine were. They probably got about as much training on how to do it as I did, too (that is, none whatsoever).

        • 0 avatar
          NoGoYo

          I’m definitely in the “young and 0 credit score” camp myself, but I’m not the most fiscally responsible guy so the secured card with a small limit might be exactly what I need.

      • 0 avatar
        This Is Dawg

        Ha Corey I fit your decription perfectly. I’ve put a grand total of one TV on credit. I’ve had no issues getting a car loan or apartment or flights or hotels, so maybe I’m looked at like these sub prime people but I’ve never had an issue with my inexistant credit history.

        Debit forevar!

    • 0 avatar
      matador

      This is why I don’t rent cars ;-)

      I agree, though- keep a card just in case. I always carry a checkbook with me in case I have a flat tire or something, but if I’m five states away, a credit card is a mighty tool if you’re in a bind. Just don’t get into debt with one.

    • 0 avatar
      CapVandal

      I have helped someone establish credit by taking out a $1000 loan, fully collateralized by a certificate of deposit. The loan proceeds were deposited into a checking account, and the loan was paid off by monthly direct debit.

      Not for everyone, but when someone has zero credit history, an easy way to start.

  • avatar
    Steven Lang

    This is a case of new technology trying to make inroads into what mom and pop car businesses have done for decades.

    To finance a car you usually need…

    Pay Stub / Proof of Income
    Utility Bill (2 if you don’t have a Bank Statement)
    Bank Statement
    Reference Sheet
    Copy of Lease (or Tax Bill)

    If the car that they are selling was cheap enough to buy in the first place, they are already going to be pretty liberal. What they do care about is three things.

    1) How consistent has your income been in the recent past? If you can keep a job, you can usually keep a car.

    2) Criminal history – Specifically anything to do with fraud or DUI. A one time hit, especially in your younger years, is not too big of a deal. A pattern of behavior over time is a huge red flag.

    3) If you are a risky bet (past bankruptcy, bank overdrafts, lying to the dealership during the application process, recent drug issues), they will want someone in the family to co-sign and a direct draw that sends the payment directly to the car dealership’s bank account.

    I have my customers go directly to the bank because it frees up my time and gives them the impression that they are dealing directly with a bank instead of me. Everyone can still contact me directly if there is ever an issue. However, I just don’t want to see some of these people every two weeks for a payment. I also don’t want my own people to deal with them either. I was exclusively a cash dealer until late-2008 and now, I still focus far more on wholesaling than retail.

    When it comes to financing folks, you have to be the equivalent of an Israeli airport screener. You have to ask a lot of good questions and be highly observant of a potential customer’s behavior. Those are things that a credit report will not help you figure out.

  • avatar
    bball40dtw

    I can’t remember the last time a car dealership asked me for any documentation besides my Drivers License and proof of insurance. I think never. When I worked at larger banks, we typically didn’t ask for income verification on auto loans.

  • avatar
    FreedMike

    Mortgage companies have been using nontraditional credit for a long time. You can use utilities, car insurance, and a variety of other things.

    Rental history is usually a good predictor of how a borrower will repay his mortgage.

  • avatar
    raresleeper

    And there’s the car you’ll get approved for.

    One “reconditioned” Dodge Avenger, clad in super duper wheel covers.

    Hot dog! Hot dog!

    And if your score is really lousy, beware kiddies.. there’s still a car for you.

    1996-2003 Mitsubishi Galant.

    And if that still doesn’t frighten you, you’ll need a credit card to pay for the thoroughly shot motor mounts and nonexistent head gasket, and hopefully the head isn’t warped… and you’re 28% APR “credit card” with a $300 credit line won’t cover the cost of repairs…

    Beware! Ooooooo…

    Your subprime nightmare beings (evil laugh)…

    Aaaa ha ha ha ha!!!

    • 0 avatar
      matador

      Or, just buy something cheap and reliable and deal with the fact that you can’t afford a new car!

      Why do kids always want a show-off car? And, when did any DSM car become cool?

      Just drive what you can afford. I drove an old LeSabre in High School. Was it cool? No. Did it fulfill everything that I needed a car to do? Yes. It was good enough.

      • 0 avatar
        raresleeper

        The Galant, as most Mitsu’s, suffer from depreciation of epic proportions.

        Thus, BHPH’s make a killing off of these.

        They pay $500. A subprimer, desperate for financing, pays $4,000. 4K PLUS.

        And it’s a “Japanese” car (nevermind it was built in Normal, IL), so it’s “reliable”, right? Right?! Because you can NEVER go wrong with any Japanese car. Subprimers know best.

        Better said would be: it’s reliable enough to get the car off the lot.

        I hereby give props, though, to one particular DSM amalgamation: the Eclipse/Talon twins. Especially the first gen’s, once you get past “The Wiring Debacle”.

        AWD + Turbo + Launch =’s a hellaciously good time.

  • avatar
    Hillman

    Common sense really. My utilities are more than what a car note would be so why not use them as part of the underwriting? Also, far to many companies place far too much emphasis on the FICO score without doing any underwriting. A bit off topic but many companies just seem to lazy or are too cowardly to say based on savings, job history, etc instead of looking at the score to approve someone.

  • avatar
    johnny_5.0

    I thought this post was going to be about Mitsubishi…

  • avatar
    sunridge place

    The linked article in the last paragraph does a great job showing a snapshot of results from some companies that specialize in the subprime used car business. Key word= USED.

    It would be nice, at least one time, that someone writing these pieces understand and acknowledge this.

    It really isn’t that tough. But it requires more than just a drive by viewing of data.

  • avatar

    There is a LOT more to this than one might see on the surface. Utility and cable bills are frequently used to prove residency. A lender wants to know where the borrow actually lives. They like to know that the borrower has the means to pay housing and utility bills. But the most important thing is previous car credit.

    But what needs to be understood is that the word “approved” doesn’t mean the borrower is approved under A Tier terms. The down payment required will be much larger on average and the interest rate at least triple. “Loan to value” on the vehicle will be carefully monitored as well as the borrower’s “debt to income” level. In addition, a “tracking device” may be installed on the vehicle used for collateral ESPECIALLY if the dealer is holding the paper.

    Yes, the loan application may be “approved” but certainly not on the same terms as a A rated borrower.

  • avatar
    Pebble

    How does one go about getting a credit score? I don’t have the slightest idea what mine is.

    • 0 avatar
      bball40dtw

      annualcreditreport.com

      It’s the website the federal government made the three credit reporting agencies set up. There is no fee for a credit report, but there is one to see your score. A number of financial institutions and each credit reporting agency (TransUnion, Experian, Equifax) have ways to get your credit score for free. The actual freeness of the free score may vary.

      • 0 avatar
        TheyBeRollin

        Also the accuracy, as they’re not actual FICO scores, just approximations of them. Thus far they’ve been pretty accurate for me, but my situation is probably fairly common.

        You should definitely be reviewing your credit reports annually. It’s easier to get things fixed if you catch them early. A fat-fingered entry or two could cost you thousands in interest if it isn’t fixed.


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