If you’re buying a car, starting from your credit score is a good thing, and asking “what’s a good credit score for a car” is a good question. Lenders use your credit score to determine whether you qualify for a loan.
Car financing needs a good credit score. Not only will a good credit score enable you to get a car, but it will also determine your interest rate on loan.
Here we looked at what credit score is needed to buy a car with bonus information about improving your credit score.
What Is A Credit Score?
Simply put, a credit score is a statistical analysis that depicts your creditworthiness. It is usually a three-digit number in the range of between 300 and 850.
A credit score gives lenders an estimate of your ability to manage your credit. The higher your score, the better you (as the borrower) look to potential lenders, including car dealers. For example, car dealers use your credit score to evaluate your probability of repaying the loan on time.
Usually, a credit score is based on your credit history, which includes such factors as bill payments, number of open accounts, total debt levels, and debt repayment history, etc.
How Your Credit Score Is Calculated?
There are three credit reporting agencies that report updates and store credit histories in the United States. They are Experian, Equifax, and Transunion. These agencies may collect different information on credit scores, but they agree on five main factors that determine the credit score:
- Payment history
- Types of credit
- Total amount owed
- New credit
- Length of credit history
Of the five critical credit information, payment history counts for 35% of your credit score and determines whether you often pay your obligations on time. The total amount owed counts for 30%, and the length of credit history takes 15%, with longer credit histories considered less risky because they give more data on payment history. Both the type of credit and new credit count for 10% of your credit score each.
You need to take a look into these aspects of your credit before you inquire about your credit score.
What Is A Good Credit Score?
Typically, a credit score of 700 and above is considered a good credit score – no matter the application, while lenders consider credit scores greater than 800 as excellent. But generally, anything above 660 is considered from average to good credit score, and these borrowers get the best rates. No matter your credit history, your current credit score will affect your credit application.
People whose credit scores are below 640, for example, are generally considered to be subprime borrowers. They are charged higher rates on their credit to compensate for carrying more risk. Lenders may also give them shorter repayment terms or require a co-signer.
While every lender or creditor usually defines its ranges for credit scores, FICO (Fair Isaac Corporation) provides an average score range that all creditors refer to. Here are the average credit scores and their ratings:
- 800 to 850: Excellent
- 740 to 799: Very Good
- 670 to 739: Good
- 580 to 669: Fair
- 300 to 579: Poor
What Is A Good Credit Score For A Car Loan?
It’s important to have an idea of what dealers will see when they check your credit profile. This is why you need to know your credit score before you visit a dealer.
According to Experian, a good credit score to purchase a car with a loan is usually anything above 660, which is the minimum score for a “prime” borrower. However, no industry’s official minimum and lenders can prescribe their credit score standards when evaluating your application.
According to an Experian report, the average credit score for a new-car loan is 716, while that of a used car is 657. But these figures also depend on the dealer or your financier.
In the analysis of car loans, Experian provides five categories of car loans based on their credit scores:
- Super prime: 781-850
- Prime: 661-780
- NonPrime: 601-660
- Subprime: 501-600
- Deep subprime: 300-500
The credit score you need to purchase a car also depends on the type of car and its condition. For example, you need a higher credit score when buying a new car than a used car.
Your credit score will also determine your initial deposit size and the amount of interest you will pay.
Note: Even with fair or poor credit, you may qualify for a car loan, but with limited lender options, among other restrictions on the deal.
Below 700 Credit Score? You, Will Explain!
Many people ask whether they’ll still get a car loan with bad credit. The answer is yes, but you’ll explain yourself. You will answer questions about the negative items on your credit record and possibly document your answers as well.
Credit is the major factor in getting a car loan. But, the truth is that dealers want to sell you the car you want, and they need proof that you can pay them back.
While you’ll likely get a car loan with a less-than-stellar credit score, it will have a significant impact on the loan rate and terms. Simply put, the worse your credit score is, the higher the loan rate and the longer the repayment schedule.
But a score of 500 or below is a flashing red light. You may fail to get a car or won’t qualify for an attractive interest rate.
How Do I Improve My Credit Score?
Any new information updated on your credit report changes your credit score. This means your credit score may fall or rise based on new information.
To improve your credit or get a good credit score, here are some secrets you can apply to achieve good credit scores (680 to 799):
Always pay your bills on time. Settling your bills on time for at least six months consecutively will give your credit score a noticeable boost.
Increase your credit line: inquire with your credit provider to increase your credit and do so if your account is in good standing. Spending that amount will also help you maintain a lower credit utilization rate.
Keep your credit card accounts open, and don’t close any credit card account. You can stop using it but don’t close the account because closing it can hurt your credit score.
Avoid applying for other credits within six months of your car loan application.
Seek the services of credit repair companies if you do not know what to do. At a fee, they will help you undertake actions that will improve your credit score.
While it’s true you can get a car loan with a subprime credit score, try to hold off buying a car until your credit score improves. Otherwise, you’ll be compelled to make a hefty down payment on the car with high interest, which can be a burden to your car loan repayments. You can work out your credit to reach the prime and super-prime levels and receive the best rates.