How are credit score and credit limit related to each other? (loans, payments)

[diddiyo]

Hi

I think I don't really understand how this works. I was looking forward to buying my first new car within the next few weeks/months and have been saving for it for quite a while. I checked my score (+750) and I could put down about 40% of the car I'd like to get. I've been working full time for two years and have a secure job (I'm 25 yo). I calculated my budget, payments etc and had everything worked out. so i thought at least.

Here's the problem. Two weeks ago I went to my bank and talked to an agent just to see if everything is OK with my accounts and what he thinks about my idea to buy a car. He told me "No chance. You only have a credit limit of $2,000 because your account is a student checking account, not a regular account. Unfortunately in todays market, even with a 40% downpayment and a good credit score like yours you won't get an auto loan. A year ago you would've gotten the best rate possible, today not a chance." We then closed the student checking acc and opened a regular acc with a regular cc card.

Everywhere you go and look you hear about "credit score", which is why I thought I'm good to go. But basically I can forget about my plan to buy a car for another couple of years until I have a bigger credit limit? Is that correct?

Thanks for your help

[StealthRabbit]

I can forget about my plan to buy a car for another couple of years until I have a bigger credit limit? Is that correct?

not exactly.... What is your credit limit on the new card? I would think there are some very interested lenders amongst car dealers!! I prefer to recommend credit unions for banking and loans. I keep a small limit card for online purchases, and high limit cards for usual purchases. They are looking at the ratio of your credit limit vs. outstanding credit. At $2,000 limit, you could have about $500 to invest in a car before they start hammering your rate. Tho I haven't ever had them balk at loans that were not related to my cards. (Things are different today).

But I will be the last person to recommend buying a car on credit, or even buying a car at all if you can avoid it. You can rent NEW cars on priceline for $15-$20 / day when you need one. (I drive a $35 vw Rabbit that gets 50mpg). I get my cars at the 'abandoned vehicle auctions', where they sell 600 / week in my area. I bought one new car 36 yrs ago and fought the financing issue, then the warranty issues, finally deciding to sell it after 10 yrs with only 32,000 miles on it, because I always preferred to drive my other stuff (antique trucks, econo cars, and on-road and 'dual sport' MC). In the meantime I stashed my car $$ into real estate and investments (Both of which are a bargain today). I bought my first house at age 19, and have had about 20 props since then, all but one did far better than my auto investments. If I was 25 again, I'd be investing in assets that will eventually REPLACE my job. Being strategic, you could be fully free from a job in 20 yrs, and getting the equivalent $$ of your job, while hanging out in Tahiti. There are a lot of bargains out there today, including cars, but... you can't live in your car, AND I never borrow money on depreciating assets.

[diddiyo]

The limit on the new card is going to start at $4,000 I was told. Unless I was traveling, I pretty much never even reached $1,000 on the $2,000 student card and payed it off right away.

I've moved five times in seven years between/within Europe and the US, so I don't know if real estate is the right market for me. And getting into the stock market right now is also not the best idea for a total newbie I think.

Right now I'm driving a $950 car that is about to die. I know a car is not an investment that will create profit, but I was really looking forward to a new one. Oh well, we will see how this turns out

Thanks for your help!

[stan4]

I'm not sure that your credit score and you credit limit necessarily have anything to do with each other. Not directly, anyway.