What does your Credit Rating mean?

There are several factors that most lenders consider when looking at a persons credit for a bad credit auto loan or lease. These factors vary in importance from lender to lender.
These factors include:

Your credit bureau report including any bankruptcies or proposals,

1. Your Credit Score,

2. Your debt service ratio,

3. Your job and residence stability, and

4. Whether you have any co-applicants.


There are two primary Credit Reporting agencies used most often in Canada: Trans Union and Equifax is probably the most recognized agencies in Canada.

Your credit bureau will record reported credit activities, including previous auto loans, credit cards, credit lines, loans as well as credit inquiries (how often you have shopped for credit). Italso records secured loan registrations, collections and judgments.(negative comments) Based upon this information, a lender will determine their risk of your credit worthiness, includinghow desperately you are seeking credit or whether you are a credit seeker ( a person trying to seek credit before bankruptcy)

Bankruptcies and Proposals are reported on your credit bureau for seven years from date of discharge in Ontario (longer if a second time or more 14 years the second time). When properly reported, the bureau also indicates which financial obligations were included in a bankruptcy or proposal as well as their discharge date. While abankruptcy or proposal. It may also be seen as positive to some lenders if it shows you have dealt with your past debt and have the capacity to handle new debt obligations, however a proposal falls under the bankruptcy act so is seen and handled as such.

You can request a copy of your own credit bureau from one of the reporting agencies for a reasonable fee. Equifax and Transunion will send you one for free.(at the time this was written)This is often advisable to ensure your credit bureau is accurate as well as to remind yourself of items you may have forgotten about before seeking more credit. Always ensure your credit is accurate and call the agencies if it is not.


There are several credit scoring methods. The most common method is based on the Fico score model developed by Fair Issac & Co. Different reporting bureaus often call it a custom name (e.g. Equifax calls it a Beacon Score). The score is derived primarily from your reported credit history and is intended to consolidate into one number your credit worthiness.

It incorporates factors such as past defaults, number and timing of credit inquiries, recently reported activities, timeliness of payments, completed financing arrangements, and whether your balances are above approved levels.(The better the credit, the higher the score.) Some lenders will giveautomatic approval on a car loan based on minimum score levels. The lower the score the higher the interest may be or the need for a co-signor.

DSR or Debt Service ratio

Lenders evaluate your financial ability to pay for your auto loan or lease by comparing your total monthly payment obligations, such as rent or mortgage payments, credit card and loan payments, to your gross monthly income (before income taxes). Guidelines vary butlenders often try to have a gross debt service ratio below 40%. Alternatively, some lenders look at your paymentto income ratio which is the percentage based on your bad credit auto loan payment to your your net (or gross depending on the lender) income. Obviously, the lower the percentage in both cases, the better.


Anotherfactor certain lenders consider is your job stability or residence stability. The longer you have worked at one place of employment increases your odds of continuing to be employed there which is considered a good thing. Steady full time employment income is viewed as the best source of income. However they will consider secondary part time jobs, or other non-permanent sources of income, are oftengiven less weight as they are less reliable and some lenders disregard them completely. Other sources of income, such as pensions and disability amounts, are viewed poorly because they may not be permanent and because there are restrictions on lenders being able to garnish these types of income if you default.

Many lenders have minimum job stability requirements before approval and minimum income Job changes in the same industry, or line of work, are often viewed as the same employment for this purpose.

Another factor considered by some is residence stability. This is especially important if a person’s credit is very bad as lenders are worried about people moving again (or “skipping” or becoming a “flight risk”) without paying them. When there are residence changes, stability in a certain area is still considered better than moves over long distances unless there are good reasons for a more permanent relocation.


A co-signer(s) can add strength to your application and increase your chances of approval on better terms and at a lower interest rate. Co-signers such as friends or acquaintances, even if they have very good credit, are often not viewed as enhancing your application because they arenot the primary driver or part of your family unit and therefore not as inclined to pay for the vehicle if you were to default. These types of co-signers are sometimes known as”straw man” or third party financing.

We can help because what we can do is represent you and tell your story to the lenders and if they don’t listen we will!
Ask us about our in-house financing or watch our videos here.