Source: https://www.detroitnews.com/story/business/autos/2017/05/09/credit-score-car-loans/101482556/
Category: what credit score is needed to buy a car
If only going out and buying a car was just that easy. There are several things you have to take into account before you make the plunge, including your credit score. Auto lenders will check your credit score, and the fact is, it’s a big determining factor in your monthly payment.
In this blog, we’ll discuss what credit scores are, what the numbers mean and what you can expect to happen at the dealership.
What is a Credit Score?
We’ve all heard the gimmicky car sales ads saying, “Good Credit? Bad Credit? No Credit? We can get you in a car today!” but what they don’t mention is your credit score greatly affects what you’ll pay. The U.S. Consumer Financial Protection Bureau (CFPB) says companies use a mathematical formula to create your credit score based on your credit history. The dealership will use your credit score to determine what interest rate you’ll pay on your car loan.
Things that Affect Your Credit Score
CFPB says there are a number of factors that affect your credit score, such as:
- Have you ever defaulted on a loan?
- How many loans do you currently have open?
- How much debt do you currently have?
- Do you make monthly payments on time?
These are just some of the factors that companies look at to come up with your credit score and therefore your interest rate.
How Do I Know My Credit Score?
Some banks offer monthly credit score updates, detailing whether your score has gone up or down. If your bank doesn’t offer this service, you can request your credit score and how it was determined by asking one of the three main credit bureaus.
Equifax, Experian and TransUnion offer this service at AnnualCreditReport.com or by calling toll-free 1-877-322-8228. You can request this information yearly for free. Reports and information from these bureaus are completely free; they don’t try to sell you anything, whereas other companies offer to tell you your credit score and then may try to sell you on applying for a loan from their company (which may not be in your best interest).
It’s a good idea to request your free credit report each year, even if you don’t plan on buying a car. Look at every item on your report. Some items may not belong to you. Some items may have already been resolved, but are not showing up correctly. Some items you may have simply forgotten that you have like an old credit card account from a store where you used to shop.
Dispute any items that aren’t correct and clean up your report as best you can. This is definitely a good idea if you are in the process of a divorce or recently divorced as your credit report may reflect things from your former spouse.
What are FICO and Vantage Scores?
Fair Isaac Corporation (FICO) and VantageScore are basically the same as a credit score. Both agencies collect info from one of the three bureaus-Equifax, Experian and TransUnion. The main difference is FICO auto scores and VantageScore may weigh the unique aspects of your credit history differently.
In fact, Experian says FICO has industry filters, including for auto loans. This means that FICO weighs your previous auto loans more heavily than your credit cards or mortgage. Dealerships can choose whether to look at your FICO or VantageScore instead of your credit score. And unlike credit scores, which fall between 300-850, a specialty auto filter from FICO has a range of 250-900.
Sounds unfair, right? How do you know which scores your dealership is looking at? This is when shopping around for interest rates becomes important. What is your bank willing to lend you and at what interest rate? Check your credit union. Check other dealerships. Lower interest rates are going to save you a lot of money over the life of the loan.
Ready to buy now? If you’re in the market for a new car, we can connect you to a trusted CarPro-certified dealer.
What Do My Credit Score Numbers Mean?
Your credit score will be a three-digit number somewhere between 300-850. NerdWallet explains that a credit score between 720-850 is considered excellent. An excellent score will get you better interest rates on your car loan and may even qualify for 0% financing at participating dealerships.
So, what if your credit score is below 720? A score of 690-719 is considered good credit and still gives you wiggle room at the dealership. A score of 630-689 is considered fair credit, with anything below 629 being recognized as poor credit.
What Credit Score Do I Need to Finance a Car?
As you’ve probably guessed, the higher your credit score, the better finance rate you’re going to get at the dealership or bank. According to NerdWallet, a credit score of 661 or higher should get you an interest rate around 4.03% for purchasing a new vehicle. Compare that to someone with a credit score between 300-500 who will pay about 12.34% interest on the same purchase. It’s easy to see why a good credit score is important.
What about purchasing a used car? Interest rates are going to be higher no matter what your credit score is when purchasing a used car. So, let’s look at our example above, but this time apply current rates to a used car purchase. A credit score of 661 or higher has an interest rate at about 5.53%. Get ready for the shocker: A poor credit score between 300-500 will pay an astronomical rate of around 20.43% for the same used car purchase. Yikes.
Numbers like that are scary and not knowing your credit score is scary, too. Are you clicking AnnualCreditReport.com or calling toll free 1-877-322-8228 to get your free credit score yet?
How Do I Raise My Credit Score?
There are some easy ways to raise your credit score. Start by correcting any misinformation. Forbes suggests always paying your bills on time and paying off debts. Take a look at your credit cards. Are they maxed out or do you have multiple cards with high balances compared to your credit limits? Generally, you want your credit cards to be 30% or less of the maximum credit limit. So if you have a credit limit of $10,000, you’ll only want to be using $3,000 or less of that credit line.
Don’t Play Pretend at the Dealership
There’s no use in hiding what your credit score is when you’re on a car lot or shopping for loans at banks. They’re going to find out quickly. Your credit score is what it is. But as the saying goes, knowledge is power. If you’ve done your homework of getting your credit reports and cleaning them up as best as you can, take that information with you to show that you’re working on building better credit.
Bring in your cell phone bill, electric bill and even your mortgage or rent statements to show that you have been paying your bills on time and that all accounts are up-to-date. Anything that shows you’re making a concerted effort to raise your credit score and that you’re able to pay for an auto loan. Dealerships and banks have some leeway. Show them you’re aware of your score and that your current efforts don’t reflect what may have happened in the past. They may just give you that break you’ve been looking for.
Your Credit Score and New Car Purchases
Your credit score greatly affects the interest rate you’ll be offered on a new or used vehicle. It is worth your time to clean up your credit reports and shop around for interest rates before you head to the dealership. If you’re worried that your credit score isn’t good enough to get a decent interest rate, bring along evidence to show you’re working on improving your credit score.
This article originally appeared on
CarProUSA
Source: https://www.mysanantonio.com/news/article/What-Credit-Score-is-Needed-to-Buy-a-Car-17468003.php
If only going out and buying a car was just that easy. There are several things you have to take into account before you make the plunge, including your credit score. Auto lenders will check your credit score, and the fact is, it’s a big determining factor in your monthly payment.
In this blog, we’ll discuss what credit scores are, what the numbers mean and what you can expect to happen at the dealership.
What is a Credit Score?
We’ve all heard the gimmicky car sales ads saying, “Good Credit? Bad Credit? No Credit? We can get you in a car today!” but what they don’t mention is your credit score greatly affects what you’ll pay. The U.S. Consumer Financial Protection Bureau (CFPB) says companies use a mathematical formula to create your credit score based on your credit history. The dealership will use your credit score to determine what interest rate you’ll pay on your car loan.
Things that Affect Your Credit Score
CFPB says there are a number of factors that affect your credit score, such as:
- Have you ever defaulted on a loan?
- How many loans do you currently have open?
- How much debt do you currently have?
- Do you make monthly payments on time?
These are just some of the factors that companies look at to come up with your credit score and therefore your interest rate.
How Do I Know My Credit Score?
Some banks offer monthly credit score updates, detailing whether your score has gone up or down. If your bank doesn’t offer this service, you can request your credit score and how it was determined by asking one of the three main credit bureaus.
Equifax, Experian and TransUnion offer this service at AnnualCreditReport.com or by calling toll-free 1-877-322-8228. You can request this information yearly for free. Reports and information from these bureaus are completely free; they don’t try to sell you anything, whereas other companies offer to tell you your credit score and then may try to sell you on applying for a loan from their company (which may not be in your best interest).
It’s a good idea to request your free credit report each year, even if you don’t plan on buying a car. Look at every item on your report. Some items may not belong to you. Some items may have already been resolved, but are not showing up correctly. Some items you may have simply forgotten that you have like an old credit card account from a store where you used to shop.
Dispute any items that aren’t correct and clean up your report as best you can. This is definitely a good idea if you are in the process of a divorce or recently divorced as your credit report may reflect things from your former spouse.
What are FICO and Vantage Scores?
Fair Isaac Corporation (FICO) and VantageScore are basically the same as a credit score. Both agencies collect info from one of the three bureaus-Equifax, Experian and TransUnion. The main difference is FICO auto scores and VantageScore may weigh the unique aspects of your credit history differently.
In fact, Experian says FICO has industry filters, including for auto loans. This means that FICO weighs your previous auto loans more heavily than your credit cards or mortgage. Dealerships can choose whether to look at your FICO or VantageScore instead of your credit score. And unlike credit scores, which fall between 300-850, a specialty auto filter from FICO has a range of 250-900.
Sounds unfair, right? How do you know which scores your dealership is looking at? This is when shopping around for interest rates becomes important. What is your bank willing to lend you and at what interest rate? Check your credit union. Check other dealerships. Lower interest rates are going to save you a lot of money over the life of the loan.
Ready to buy now? If you’re in the market for a new car, we can connect you to a trusted CarPro-certified dealer.
What Do My Credit Score Numbers Mean?
Your credit score will be a three-digit number somewhere between 300-850. NerdWallet explains that a credit score between 720-850 is considered excellent. An excellent score will get you better interest rates on your car loan and may even qualify for 0% financing at participating dealerships.
So, what if your credit score is below 720? A score of 690-719 is considered good credit and still gives you wiggle room at the dealership. A score of 630-689 is considered fair credit, with anything below 629 being recognized as poor credit.
What Credit Score Do I Need to Finance a Car?
As you’ve probably guessed, the higher your credit score, the better finance rate you’re going to get at the dealership or bank. According to NerdWallet, a credit score of 661 or higher should get you an interest rate around 4.03% for purchasing a new vehicle. Compare that to someone with a credit score between 300-500 who will pay about 12.34% interest on the same purchase. It’s easy to see why a good credit score is important.
What about purchasing a used car? Interest rates are going to be higher no matter what your credit score is when purchasing a used car. So, let’s look at our example above, but this time apply current rates to a used car purchase. A credit score of 661 or higher has an interest rate at about 5.53%. Get ready for the shocker: A poor credit score between 300-500 will pay an astronomical rate of around 20.43% for the same used car purchase. Yikes.
Numbers like that are scary and not knowing your credit score is scary, too. Are you clicking AnnualCreditReport.com or calling toll free 1-877-322-8228 to get your free credit score yet?
How Do I Raise My Credit Score?
There are some easy ways to raise your credit score. Start by correcting any misinformation. Forbes suggests always paying your bills on time and paying off debts. Take a look at your credit cards. Are they maxed out or do you have multiple cards with high balances compared to your credit limits? Generally, you want your credit cards to be 30% or less of the maximum credit limit. So if you have a credit limit of $10,000, you’ll only want to be using $3,000 or less of that credit line.
Don’t Play Pretend at the Dealership
There’s no use in hiding what your credit score is when you’re on a car lot or shopping for loans at banks. They’re going to find out quickly. Your credit score is what it is. But as the saying goes, knowledge is power. If you’ve done your homework of getting your credit reports and cleaning them up as best as you can, take that information with you to show that you’re working on building better credit.
Bring in your cell phone bill, electric bill and even your mortgage or rent statements to show that you have been paying your bills on time and that all accounts are up-to-date. Anything that shows you’re making a concerted effort to raise your credit score and that you’re able to pay for an auto loan. Dealerships and banks have some leeway. Show them you’re aware of your score and that your current efforts don’t reflect what may have happened in the past. They may just give you that break you’ve been looking for.
Your Credit Score and New Car Purchases
Your credit score greatly affects the interest rate you’ll be offered on a new or used vehicle. It is worth your time to clean up your credit reports and shop around for interest rates before you head to the dealership. If you’re worried that your credit score isn’t good enough to get a decent interest rate, bring along evidence to show you’re working on improving your credit score.
This article originally appeared on
CarProUSA
Source: https://www.mysanantonio.com/news/article/What-Credit-Score-is-Needed-to-Buy-a-Car-17468003.php
Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations.
Compare Rates and Save on Your Auto Loan
Get up to 4 loan offers in minutes at myAutoloan.com.
Buying your own car can unlock a sense of freedom that’s hard to get anywhere else. But before you sign on the dotted line, you’ll need to meet minimum credit score requirements to qualify for an auto loan.
It can be tough to know whether you have the right credit score needed to buy a car. There are lots of different credit scores, after all, and each lender has its own set of requirements. Even if you’re not able to qualify on your own, you can often qualify for an auto loan if you have a co-signer with good credit. Here’s what you need to know.
What Credit Scores Do Auto Lenders Use?
FICO Score is the most common credit score that lenders use, with 90% of top lenders using it, according to FICO. It’s a general-purpose credit score with multiple versions (FICO Score 10 is the newest version, for example). There are also industry-specific scores, including one for the auto lending industry. Industry-specific scores also have different versions, such as the FICO Auto Score 10.
Each lender makes its own decision when it comes to the credit score model it uses. Unless you ask potential lenders which credit score they check, you won’t know. That’s why it’s usually best to check your general-purpose FICO score if you’d like to check your credit score before applying for a loan, which we recommend.
What Credit Score Is Needed to Buy a Car?
There is no official one-size-fits-all credit score needed to buy a car. Instead, each lender sets its own criteria, so there may be different cutoff points for different lenders.
That said, it’s definitely easier to get approved for a car loan if you have a good credit score. The lower your credit score, the harder it may be to find a lender, and if you do, you’ll usually pay a lot more for financing. That’s why most people who end up taking out an auto loan have a good or excellent credit score.
According to Experian’s State of the Automotive Finance report from the second quarter of 2021, here’s how many people got car loans within the different credit score ranges:
The lower your credit score, the lower your chances of you being able to buy a car. If your credit score needs a lot of work, it may be hard to find a lender who will approve you for a car loan.
When to Use a Co-signer
If you’re not able to qualify for an auto loan on your own, you may need to find a co-signer with better credit.
However, it’s usually best to not use this option if you can help it because it’s a big deal to ask someone to co-sign on your loan. You’re basically asking them to repay your auto loan for you if you’re not able to do it for whatever reason. If that happens, you could end up burning your relationship, and no one wants that.
But if you have a loved one who trusts you, is in a better financial spot themselves, and is able and willing to help, it can make the difference between you getting a car or not.
How Does Your Credit Score Impact Your Loan Costs?
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:
The difference between 20.58% and 3.66% might not seem that huge at first, but let’s look at how that affects how much interest you pay over the life of the loan. If you buy a car for $25,000, make a $5,000 down payment and pay it off over five years, you’ll pay $1,916 in interest by the time that car is paid off with good credit.
However, with bad credit, you’ll end up paying a staggering $12,181 in interest by the time you paid it off—over half as much as the car itself costs.
How to Improve Your Credit Score Before Buying a Car
If you don’t have a perfect credit score just yet, don’t worry—you’re not alone. There are plenty of steps you can take to improve your credit score before applying for an auto loan. Here are some things you can do that will increase your score relatively quickly:
- Catch up on paying off any past-due debts.
- Check your credit report and dispute any inaccurate marks on your file.
- Pay down as much revolving debt (credit cards and other lines of credit) as possible.
- Avoid any hard credit checks, such as those from applying for new credit or services.
- Avoid closing old credit cards you don’t use, as long as they don’t carry an annual fee.
- Request credit limit increases on your credit cards (and don’t use that extra credit if it’s not needed.
Here are some things you can do to improve your credit score in the long run:
- Always pay your bills on time—set up autopay so you’re worried you might forget.
- Open new types of loans and credit as you need them, such as student loans or credit cards, to diversify the types of credit you have.
Building your credit score to a level that qualifies you for an affordable car loan can take a long time in some cases. But it’s well worth it because you’ll be able to get the best car possible at a price that won’t drain your bank account.
Raise Your FICO® Score Instantly with Experian Boost™
Experian can help raise your FICO® Score based on bill payment like your phone, utilities and popular streaming services. Results may vary. See site for more details.
Source: https://www.forbes.com/advisor/credit-score/what-credit-score-is-needed-to-buy-a-car/