What Credit Score Do You Really Need to Buy a Car?

You’ve driven the same car for years, hoping its wheels would keep turning (and its engine would keep turning over) until you raised your credit score to the Very Good or even Excellent range. While your score is almost to its destination, your car won’t be reaching any new locations soon: It’s finally quit on you. Even if your credit score isn’t exactly where you’d like it to be, you’ve got to get a new car.

You might be wondering what credit score you need to get a car loan. The answer is that there’s no universal minimum credit score you need to qualify for an auto loan. Banks, credit unions, online lenders and dealerships can set their own requirements. And your credit score is only one factor lenders may consider when deciding whether to approve your loan and what terms to offer.

However, your credit score can make a difference in how much you pay for that car over time.

A Higher Credit Score Can Mean a Lower Interest Rate

There are clear benefits to having a higher credit score when you go to purchase a new car. According to data from Experian, borrowers with VantageScores between 661 and 780, considered prime credit, hit the fast lane toward more favorable Annual Percentage Rates (APR), with an average APR of 6.15% on new-car loans and 8.81% on used-car loans.

For borrowers with scores between 601 and 660, the average APRs were 9.71% for new cars and 13.93% for used cars.

In other words, you may be able to get a car loan with a lower score. But a lower score could mean paying more in interest.

Though your most pressing fear is whether you’ll get approved for a car loan — and that’s an understandable concern — you should also ask yourself how much the loan will really cost you over time. And believe it or not, what you see in your own credit report may not be the end of the story.

Your Auto Lender May See a Different Credit Score

Before you start worrying that your credit score won’t put you in the fast lane to a car loan, there’s one more thing to know: The score you see may not be the score your auto lender sees.

The score you see may not be the score your auto lender sees.

You don’t have just one credit score. Different credit-scoring models can weigh information in your credit reports differently, and some lenders use industry-specific scores designed for particular types of borrowing.

For example, FICO Auto Scores are designed specifically for auto lending. In addition to looking at your overall credit history, these scores place more emphasis on how you’ve handled auto loans in the past. Depending on the lender, your application could be evaluated using a FICO Auto Score rather than the standard FICO Score you see elsewhere.

So don’t panic if the number you see when you check your credit doesn’t perfectly match the number a lender gives you. A difference doesn’t necessarily mean something is wrong with your credit.

The smart approach is to know the general state of your credit before you shop, without getting too hung up on hitting one magic number. When you’re ready to apply, compare loan offers and look at the interest rate, monthly payment and total cost of the loan.

And even if your credit isn’t where you’d like it to be, you have options.

Okay, But I Need a Car Now. What Do I Do?

Ideally, you wouldn’t need to apply for a car loan until your credit score was revved up and ready to go. But if your car has given up the ghost, you need a vehicle for work or your family situation has changed, you need to buy now. Not six months from now.

You might think your only option is to take whatever loan a dealership offers you. That’s not true.

You might think your only option is to take whatever loan a dealership offers you. That’s not true.

Start by checking your credit reports and scores so you have a better idea of where you stand. You might find an error or an account that’s being reported incorrectly. If you spot inaccurate information, you can dispute it with the appropriate credit bureau.

You should also shop around for financing. Some lenders offer prequalification using a soft credit inquiry, which generally doesn’t affect your credit scores. Comparing offers from banks, credit unions and online lenders can help you see what terms are available before you commit to a particular loan.

A larger down payment may also help. You’ll borrow less, which means you’ll pay less interest over the life of the loan. Depending on the lender and your overall application, putting more money down may also help you qualify for better terms.

And if you have someone you trust who is willing to co-sign, that could potentially help you qualify or get a better offer. Just remember that a co-signer is legally responsible for the debt, too.

Your Car Loan Can Actually Help You Build Credit

Needing to take on a car loan while you’re building your credit isn’t exactly an ideal scenario. But there is a silver lining: If you make your monthly payments on time, your payment history can help you build a stronger credit profile over time.

Payment history is one of the most important factors in credit scoring. If you make your car payments on time and the lender reports them to the credit bureaus, those payments can contribute to a positive payment history.

That doesn’t mean your score will jump overnight. But consistently paying your bills on time gives your credit history a chance to show lenders that you can manage debt responsibly.

So if you do take out an auto loan, make those payments a priority. Set up automatic payments or reminders if that helps you avoid accidentally missing a due date.

If Your Credit Isn’t Perfect, Focus on What You Can Control

You’re not at the financial equivalent of waiting at a red light to buy a new car if your credit score is below 800. However, if you anticipate that you’ll need to take out a loan sooner rather than later, improving your credit first could help you qualify for better loan terms.

• Pay your bills on time. Consistent on-time payments can help build a positive payment history.
• Pay down credit card balances. Lowering your credit utilization can help your scores and is one of the changes that may produce results relatively quickly.
• Check your credit reports. Look for inaccurate information or accounts you don’t recognize.
• Avoid taking on unnecessary new debt. New credit applications and accounts can affect your scores, so consider holding off on other borrowing if you’re preparing to apply for an auto loan.
• Keep comparing your options. A lender’s offer isn’t necessarily the only one available to you.

And if you have to accept a higher-interest auto loan now, improving your credit could potentially give you the opportunity to refinance later.

Your credit score doesn’t have to be perfect before you buy a car. But knowing your score, understanding what it could mean for your loan and making a plan for those payments can help make the road ahead smoother.

Your credit score doesn’t have to be perfect before you buy a car.