What Should My Credit Score Be To Buy A Car
While there is no specific minimum credit score to buy a car, your credit rating is an important factor in the financing approval process and determining your interest rate. In fact, according to FICO, most auto lenders use what's called a FICO Auto Score as part of their lending decision.
what should my credit score be to buy a car
If you are wondering, "What is a good credit score to buy a car?" you have come to the right place. Your credit score matters a lot when buying a car. Let's take a look at what you need to know about credit history and auto financing.
According to Experian data in the second quarter of 2021, the lowest auto loan rates are reserved for people with a higher credit score above 780 (also known as a prime credit score). Borrowers with a subprime credit score below 500 have difficulty getting approved for car financing.
These borrowers may struggle to qualify for a car loan. If you do qualify, you can count on paying the highest interest rates. Borrowers with very poor credit scores typically have many late or missed payments, bankruptcies, or other serious negative information on their credit report. Borrowers in this range would pay around 14.4% for a car loan, according to Experian.
Very good credit scores are typically reserved for borrowers with a history of on-time payments and low credit balances. These borrowers typically have multiple credit accounts and a history showing they can manage multiple accounts with on-time payments and get close to the best interest rates available.
If you are worried about being subprime and getting approved or just want to save money with a lower interest rate, you can take action today to improve your credit score. First step? Check your credit report from the credit reporting agencies (you can get a free copy every 12 months from each bureau at annualcreditreport.com) to see where you stand and how you can improve your credit rating.
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While there is no official minimum credit score required to apply for auto loans, lenders have minimum standards that they look for when reviewing your application. And, as a general rule, the lower your credit score, the more interest you will be charged.
The minimum credit scores to qualify for auto loans vary based on the lender and the car you are looking to finance. Some lenders may consider you if your credit score is below the advertised minimum if you are a current customer or can otherwise prove to them that you are a low-risk borrower.
A credit score is a numerical representation of how likely you are to repay a loan. The higher your credit score, the less risky you are considered and the more likely you are to receive a favorable interest rate on your loan and better terms.
The FICO score is the most widely used score for auto loans. The score ranges from 300 to 850. The score is calculated based on credit mix, payment history, amount owed, average credit history and available credit.
Those with credit scores under 500 are considered to have deep subprime credit and will likely face the highest interest rates. The average auto loan interest rate for the deep subprime category was 12.93 percent. But, depending on your income and other factors, you may not even qualify for financing with a credit score of 500.
While knowing your credit score will be a key factor in the auto loan approval process, it is not the only factor. Keep up to date with your credit score and work to improve it if you struggle to meet the minimum score requirement.
Your auto loan credit score has a big impact on how much you pay for a loan. Take a look at this chart of the average car loan interest rate by credit score for the second quarter of 2022, according to Experian:
Your credit score is always important when applying for new loans, but when it comes to buying a car, there is no minimum score needed to be approved. Having a higher score may improve your chances of getting a loan with low rates and more favorable terms, but it's still possible to get an auto loan with a less-than-perfect score.
Credit requirements for car loans vary by lender, and there are no industry standards that dictate which credit score a lender should use or what minimum score is needed. Lenders make their own policies for how they evaluate your credit and other financial factors.
While your credit score and report are important when you are seeking a loan to buy a car, lenders look at multiple aspects of your finances when considering you for a new loan. They'll consider your income, other debt obligations and whether you've paid past loans back on time.
For auto loans, lenders may also use your auto-specific credit score. While your general scores from FICO or VantageScore range from 300 to 850, the FICO Auto Score, for example, ranges from 250 to 900. In either case, a higher score equates to lower risk for the lender.
Ultimately, creditors look for indicators that show you've managed debt well in the past and will likely pay back this new debt on time and in full. Red flags in your credit will stand out, so be prepared to explain any blemishes, such as a collection account or several late credit card payments. Loans with the lowest rates and best terms may be tougher to get if you have these types of negative items in your credit history. Average Interest Rates Based on Credit Score RangeYour credit score will not only determine whether you get approved for a loan, but it may also be used to establish your interest rate. The following are the average interest rates, monthly payments and loan amounts for consumers in different score ranges as of the second quarter of 2020.
While the actual interest rate and monthly payment you receive may be based on more than just your credit score range, these figures may help you in comparing any loan offers you receive as you shop for a new car.
As mentioned, the higher your credit score, the better chances you'll be approved for a loan with a low interest rate and preferable terms. Improving your credit score before applying for an auto loan can help you save money over the life of your loan, and could make a difference in what car you end up being able to buy.
If you have bad credit and don't have time to wait for it to improve, getting a car loan is still possible. In fact, there are some lenders that work specifically with people with lower credit scores. Once you know your credit score, start speaking with potential lenders to see which ones might have options for someone in your credit range.
In addition to shopping around for deals, make sure to have other aspects of your application well-organized so you can compensate for a lower credit score. Here are a few ways you can prepare for financing a car with bad credit:
Like anything else, you should weigh your options to find the right deal if you need to finance your car purchase. Look for lenders who finance vehicles for people with similar credit scores to yours, and also see what financing the dealer may offer.
If you do not pre-qualify or get pre-approved for a loan, you may want to consider other options like a trade-in or down payment. Trade-ins or putting a down payment on a car can lower your prospective loan amount and improve your ability to qualify. You also can find a co-applicant with an improved credit score to co-sign your loan. This means that your co-signer will legally enter the contract with you as part-owner of the car, and is thus dually responsible for the loan repayment.
Nearly everyone can qualify for a car loan and buy a car, no matter their credit score. However, the lower the score you have, the more expensive buying a car will be. Buyers with extremely low scores can easily find themselves falling prey to predatory lenders, and will need to consider whether having a car is worth the high price of its financing.
To get an auto loan without a high interest rate, our research shows you'll want a credit score of 700 or above on the 300- to 850-point scale. That's considered prime credit, and lenders don't have to price much risk into their rates.
The absolute best auto loan interest rates are reserved for borrowers with scores of 750 or higher. These super prime borrowers represent little risk to lenders. They almost always make their payments on time, and they pay their financing off as agreed in their loan documents. Of course, bad things happen to even the best borrowers, so lenders price some risk into the interest payment.
To qualify for these money-saving offers, you need to have a top-notch credit score. That means that even a score of 750 may not be eligible. Car deals are another reason you want to check your credit scores and the credit history behind them well before you're in the market for a new car. A difference of just a few points may be the difference between getting a car deal that saves you thousands of dollars and missing out on the offer altogether.
As we mentioned earlier, credit scores are based on the information in your credit reports. They include information about your payment history, how much credit you have available, how much debt you have relative to the amount that is available to you. Each model is slightly different, and many are proprietary, but here's an example of the components and weight using publicly available information about the FICO scoring model. 041b061a72