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Understanding the credit score needed to buy a car is crucial for navigating the auto financing process efficiently. While there's no universal minimum score to secure an auto loan, knowing where your credit stands can significantly influence the loan terms you're offered.
This guide dives into the essentials of credit scores for car purchases, from the impact of different score ranges to strategic tips for enhancing your credit before stepping into the dealership.
Whether you're aiming for a new set of wheels with premium financing or exploring options with a less-than-perfect score, we've got the insights to steer you in the right direction.
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Why does it matter if you have a good or bad credit score when buying a car?
A car is one of the biggest expenses you will face in your lifetime. The amount you spend on it can be upwards of $30,000 or more for the most luxurious SUVs and sports cars.
In order to get this price lower, dealers try to sell vehicles to people with low credit scores - they do not believe that these individuals are capable of making large purchases so they don't expect them to buy high-end products.
That is why it is important if your score allows you to borrow money; many people need financing and without being able to qualify for a loan, they are unable to purchase a vehicle.
How to calculate your credit score
The best way to calculate your credit score is to do it yourself and you can do so, completely free of charge, on the
myFICO website.
They will ask for a credit card number to verify your identity before they send you the score. It is also worth noting that it usually takes about 2 weeks from when you request this check until you get it back.
Another great way to calculate your credit score is to have someone who already has a high credit score look at their report and tell you what makes up the difference between theirs and yours. This way you compare them both and determine what's missing from your credit score, and what you need to fix.
In 2023, the average credit score needed to qualify for a new car loan is 720, while the average used car loan credit score requirement is 680, according to
Experian. This means having a score in this range or higher will help ensure you get approved and get the best rates.
How to check your credit score
Many banks and credit card companies now offer free access to your credit score through your online account. You can check your credit score for free through providers like Chase, Bank of America, Citi, Discover, and Capital One. This allows you to monitor your credit on an ongoing basis to ensure it stays in good shape when you're ready to apply for a car loan.
Why is your Equifax credit score lower than your TransUnion score?
TransUnion seems to judge you more harshly because of your credit history.
Equifax is likely more lenient because they are only going off of the recent data that you provided and not drawing conclusions from any prior data.
Some factors that play into credit scores include delinquency on payments, the length of time someone has had a credit card and their total number of accounts. Income is also an important factor in calculating your score.
TransUnion may have access to more information like delinquent payment history or marital status, which Equifax does not. Credit report agencies take different types of information into account when calculating a score.
So while one might list higher than the other in some aspects, it doesn't mean it is better because there are many different ways to look at a score.
For more detailed information read our article on
why your Equifax credit score is lower than TransUnion
What are the requirements to get approved for financing on a car purchase and how can I improve my chances of getting approved?
The requirements to get approved for car financing can vary by dealer, but in general, the following guidelines apply.
Having a good or excellent credit score can help you qualify for favorable interest rates and terms. Some dealers may run your credit even if you don't plan to finance through them but only as an added bonus if they decide to offer you financing.
If this is the case it's often worth it to at least check with them because your chances of getting approved will be much higher than trying to get financed directly from one of the big three (Chase, Bank of America, and Citigroup) banks.
You must be employed (or have legitimate proof that you expect to start making income within 3 months of purchase).
You must have some type of established credit history (credit cards, car payments, loans, etc.)
You will need to provide your social security number and at least three months worth of pay stubs or financial documents showing you are receiving regular income. If you do not have a job then the best thing to do is wait until you get one before even considering this.
The vehicle cannot be older than 5 years - although that rule may vary depending on the bank and salesperson that you go through.
If your credit has been ruined by an event in your life, there are ways to fix it - what should I do first if this happens to me?
There are ways to fix your credit if you have a bad credit score because of an event in your life. But how do you know what to do first? There's a lot of conflicting information out there and it can be confusing.
The way I like to look at this is to think of your credit score as if it were a report card that schools give students every year. When something bad happens, like a late payment or a collections account, you get a bad mark on that report card. How many bad marks are allowed before the school kicks you out or your bank no longer wants to extend more credit to you?
The answer varies from school-to-school and bank-to-bank but in general, I've heard 12 months.
Tips on maintaining a good credit over time
Here are some tips below on how to maintain a good credit score from here on out.
- establish good credit with an initial card such as a credit card.
- pay off the monthly balance in full and on time each month.
- have a high level of debt repayment from other sources (like a 401k).
- increase the portion of your debt to low-interest sources, like student loans or mortgages.
- have some savings to fall back on in case you can't make payments.
- always keep up with what's happening to your credit rating by checking it regularly, for example through Experian or Equifax websites where you have required access credentials) can be used for free once every six months).
How to improve your credit score
Improving your credit score if it's under 700 can help you qualify for lower interest rates on a car loan, potentially saving you hundreds or thousands of dollars.
Key ways to boost your credit include:
- Making on-time payments for all bills and debt
- Keeping credit card balances low
- Paying down outstanding debt
- Checking for and disputing any errors on your credit reports
For more tips on how to boost your credit score, see our
how to improve your credit score page.
Get pre-approved for an auto loan
Know your budget and monthly payment before you start shopping. Pre-qualification locks in an interest rate while you search for your dream car.
Get help checking for errors or opportunities.
Mistakes happen. Let our experts review your full credit reports for errors to dispute or ways to optimize your score.
Sign up for custom score alerts
We'll notify you as soon as your credit score changes so you can catch issues early or celebrate improvements!
Some additional ideas:
- Free consultation to review auto financing options
- Download "The Complete Guide to Getting a Car Loan"
- Request a custom quote for auto loan refinancing
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