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What Credit Score is Needed to Buy a Car?


While shopping for a car can be an exhilarating experience, you may be wondering whether your credit score will impact your ability to buy a vehicle. The better question is whether your credit score will impact your eligibility for an auto loan. That’s where your credit score really counts. While there’s no minimum credit score qualifying for an auto loan — each lender is different and some are willing to take on more risk than others —your credit score will be a factor in how much you can borrow and the terms you’ll be eligible for. So let’s find out what credit score is needed to buy a car.

Almost anyone can buy a car these days, as subprime auto lenders are open to lending to buyers with low credit scores. Statistics show that loan lengths are getting longer and loan balances are getting higher, which indicate that lenders are stretching out vehicle loan terms to make more buyers eligible. However, the credit bureau Experian reports that the bulk of the auto lending market is borrowers with credit scores over 600.

As with any major purchase, buyers should carefully consider the financial commitment they are making before signing for an auto loan — even if it looks like they can afford it.

Average credit score needed to buy a car

Lenders use a buyer’s credit score, along with other sources of information, to establish how likely you are to pay back the loan, and to set the interest rate and terms of the loan.

“Our credit evaluation ultimately determines whether or not we can finance a vehicle purchase as well as the rate and length of the loan,” Paul Hartwick, a spokesman for JP Morgan Chase told LendingTree. “Customers with higher credit scores will certainly have a better chance at being approved.”

The average credit score needed to buy a car is increasing slightly for all types of vehicle loans. According to Experian, which publishes a quarterly report about state of auto loans and leases, the average credit score for a new and used car purchases is up four points from 2016.

The likelihood of a buyer getting approved for a loan increases as his or her credit score increases, and, according to Experian, an increasing percentage of loans are being awarded to prime borrowers – which means that their credit score is in the range of 661-780.

In the third quarter of 2017, for example, 39.63 percent of all vehicle loans were issued to prime borrowers, compared with 38.88 percent a year before. The percentage of loans approved for subprime borrowers, with credit scores between 300 and 600, was 22.74 percent in the third quarter of 2016 and 21.52 percent for the same quarter of 2017.

How credit scores impact car buying

1. Your interest rate

Your credit score is directly related to the interest rate that you will receive on a vehicle loan, as lenders consider it an indicator of how likely you are to pay back the loan. Borrowers with high credit scores can get a significantly lower rate than subprime borrowers, those with credit scores below 600.

While that means that subprime borrowers still can get a vehicle loan, they will pay significantly more in interest over the life of the loan. Borrowers in this situation may want to hold off on applying for a vehicle loan until they can improve their credit score.

2. Your down payment

Just keep this in mind — the lower your credit score, the higher the lender’s down payment requirement may be.

If you have a low credit score, a bigger down payment could help get more favorable terms for your loan. Generally, 20 percent of the price of the car is a solid down payment for a new car; 10 percent is acceptable for a used car.

The more money you put down on a vehicle, the less you’ll need to finance. Upping the amount of your down payment can increase your chances of getting approved, as lenders consider the amount of the loan and the amount of the monthly payment, Hartwick said. That could translate into a lower interest rate, better financing terms, and a higher chance of a loan being approved.

Auto credit score vs. traditional credit score

Any time you apply for a loan, whether it’s for a house or a car, the lender will look at your credit score. What many consumers don’t know is that lenders from different industries look at different versions of your credit score. In other words, the credit score that lenders look at for a personal loan will be different than the one they look at for a vehicle loan.

So what’s the difference? Industry-specific credit scores begin with a base credit score, which is also called a FICO Base Score. This score rates your overall creditworthiness and factors in your payment history on debts, how much you owe, the length of your credit history, types of credit you are using, and your new credit. Base FICO scores range from 300 to 850 and take into account all of your debts, including credit card balances, student loans, and mortgages.

There are several different versions available of the FICO Auto Score, like other credit scores specific to an industry, looks at whether you are likely to pay back a vehicle loan. The score will give much more weight to your debt history related to vehicle loans than your Base FICO score does.

The information that the FICO Auto Score provides to lenders about you includes:

Auto loans or leases you have settled.
Late payments you have made on previous or current auto loans or leases.
Vehicles that have been repossessed.
Car loans or leases that were included in a personal bankruptcy.
Auto accounts that have been sent to collections.
FICO Auto Scores typically range from 250-900.


Why do auto financing companies use the FICO Auto Score?

The FICO Auto Score gives lenders a better picture of whether you’ll pay them back, as it shows the details about your history with auto loans. The score shows lenders every missed payment or loan problem you’ve had, helping them determine how risky it would be to issue you an auto loan.

How do I know which credit score the auto lender is using?

Car lenders typically don’t advertise whether they are looking at your FICO or FICO Auto scores, but there are ways to figure it out.

While you can get an estimate of your FICO Score free online, if you pay to access your official score, you can find which scores your lending is pulling. MyFICO, a website that provides consumers with direct access to FICO scores, shows which FICO data providers produce which versions of FICO scores.

MagnifyMoney, a LendingTree-owned site, has an extensive chart including all the best ways to get your credit score based on the type of loan you’re applying for. For auto loans, the best credit scores are unfortunately not free.

The best options: FICO® Auto Scores 2, 4, 5, 8, 9

Where to get them: myFICO for $59.85.

Another way to find out which credit score your auto lender is using is to talk to your dealership’s finance department before you sign a loan. The department can tell you which version of your FICO Auto Score it will use, information that can benefit you when you negotiate the loan.

Regardless of which score the lender uses, you are still likely to pay a higher interest rate if you have a low credit score.

How to improve your credit score to buy a car

If you have a low credit score, your best financial move is to “clean up” your credit before you begin the car buying process. Improving your credit score enough to jump from the subprime category (from 501-600) to nonprime (601-660) could lower your rate from an average of 16.23% to 9.98%, according to Experian.

Here are some tips to consider for improving your credit score:

Review your credit report: A good first step is to request a free copy of your credit report from AnnualCreditReport.com (you can get one per year) and check it for errors. While all errors on a credit report should be fixed, errors that are affecting your credit score are especially important to correct, such as erroneous payment records or old accounts that should have fallen off your report already.

Pay your bills on time: This strategy may seem simple, but making timely payments on all of your bills is foundational to good credit. You can set up automatic payments or use automated money management programs, such as Mint, that will send you text or email reminders when your bills are due.

Lower your debt: This could take a little time, but your credit score will benefit from decreasing your credit balances. You can do this by cutting your spending and making extra payments toward your debt, taking on extra work to earn more money to repay loans, or consolidating your debt into a single loan that you can pay off more quickly. Whichever strategy you choose, it’s key to be disciplined about your spending so that you don’t accrue more debt in the process.

Before you enter the car buying process, educate yourself about your credit score. Even though a subprime lender will issue you a loan if you have a low score, consider putting off your vehicle purchase while you improve your own finances. Buying a vehicle with a higher credit score will mean you could get a much lower interest rate and lower monthly payments. Over the life of the loan, that could translate into significant savings.

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