What Is a Credit Amnesty?

If your credit is bad, you’ll have problems securing loans for housing, cars and other needs. Some lenders, especially those in the auto industry, may offer credit amnesty programs for potential buyers with low credit scores. In such cases, amnesty refers to a pardon from a poor credit score, since amnesty means pardon in the formal sense. In reality, credit amnesty means certain lenders are willing to overlook your poor credit and approve a loan. There are some factors you should consider before accepting one of these loans.

Car dealers offering credit amnesty programs typically charge the highest interest rates and provide longer loan terms than they do for buyers with good credit. Some dealers don’t use the phrase “credit amnesty” per se, which has no legal definition in the United States, but advertise “bad or no credit approval” for such loans. When you go to such dealerships, you will usually need to bring along your two most recent pay stubs, a utility bill and your driver’s license. The utility bill proves you are current with your basic necessities. There is no point in bringing a utility bill if it shows your electricity or water is on the verge of being shut off.

Some dealers may require personal references, so find a responsible party to write you a reference. Credit amnesty is not usually available to someone who is unemployed. As the dealer’s radio or TV ad might announce, “Your job is your credit.” If your credit amnesty is approved, you can choose a suitable vehicle. Keep in mind that, due to your poor credit, much of your loan payment will consist of interest.

Rather than rely on dubious credit amnesty programs, take measures to improve your credit score. It may take time, but will help you in many areas of life that require credit. Credit scores rely on the most recent information, so get started by paying down as much debt as possible and making sure you pay all of your bills on time. Keep your balances as low as possible on credit cards, and pay them off completely if you can. Don’t apply for credit you don’t need, as this can actually lower your credit score.

Before buying a car, run your credit report at least three months beforehand. That way, you can act on items requiring attention. The three major credit reporting agencies, Experian, TransUnion and Equifax, all offer one free credit report annually. Look at what the credit report deems “risk factors” and see if you can correct them. Those risk factors run the gamut, but may include late payments, debt that went to collection or civil court fines. Correct what you can, and even if you do receive a loan, don't stop until your credit rating has improved and you don't have to rely on amnesty again.