What's going on with GMAC's car loan standards?


Flush with capital from taxpayers, GMAC is lowering its underwriting standards. The credit crunch and a shortage of cash had pushed the company's minimum FICO score for car loans up to 700. Now credit scores as low as 621 will qualify for some form of GMAC finanncing.

In its press release announcing the return to less responsible lending, GMAC made it sounds like a FICO score requirement of 700 was unreasonably high: "The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers."

Here's the truth about a 700 FICO score: It puts your right around the middle. According to Equifax, this is an approximate breakdown of Americans' credit scores;

  • 15% of the U.S. population is below 600

  • 35% of the U.S. population is below 670

  • 50% of the U.S. population is below 710

  • 70% of the U.S. population is below 755

  • 90% of the U.S. population is below 790

In other words, lowering required credit score below 670 would have allowed 65% of Americans to get a GMAC loan. And now the federal government provided the cash for GMAC to go 49 points lower than that!

Looking at the dismal state of so many Americans' finances, I find this unconscionable. If your credit history is worse than 70% of the population, what business do you have taking out a loan to buy a new car? I know, it's your choice, but is that really something that the federal government should be subsidizing?