Car Buying Tips

What Credit Score is Needed to Buy a Car?

By TheCarzingTeam April 25, 2022 | Car Buying Tips

Car Buying Tips

Buyers who need to finance their car might take advantage of dealership promotions or deals that promise zero percent interest or other great rates. When applying for financing through the dealership or other financial institutions, buyers might receive a rude awakening when they see their monthly payment estimate.

The interest rate could be much higher than the promotional great rate. Some buyers might even be turned down for financing. Why would a buyer be rejected for financing or receive financing with high interest rates? Low credit scores could be the culprit. What credit score is needed to buy a car, and what credit score is considered good for lower rates?

What Credit Score is Needed to Buy a Car

Understanding Credit Scores

When a buyer applies for a loan to finance their new or used vehicle, they will need to fill out a credit application. This application allows the lenders to access the buyer’s credit history and credit score. There are three different credit reporting agencies that provide credit scores: Experian, TransUnion and Equifax.

The credit score reported by these agencies is known as the FICO score. The process for scoring can get a bit complicated, as there are different FICO scoring systems; for example, most lenders use FICO 8. However, consumers need to know that their credit score is based on five key factors:

  • Credit history
  • New credit
  • Amounts owed
  • Mix of credit
  • Payment history (are you on time or late?)

Payment history accounts for the largest chunk of the score (35 percent), but it’s followed closely by the amounts that an individual owes (30 percent). New credit and the mix of credit both account for 10 percent of the score, and an individual’s credit history makes up 15 percent of the score.

An individual’s payment history has the most impact on a score, and it’s also the factor that most people can control. Paying on time consistently for loans, credit cards and other debt can give the score a bump over time. However, late payments can put a ding on the score.

Consumers might wonder what is meant by ‘mix of credit.’ This term means that the individual has different types of credit—an auto loan, a mortgage, credit cards, etc. A good mix of credit can be a positive.

What Credit Score is Needed to Buy a Car

What is a Good Credit Score?

Credit scores are always three digit numbers. What is a good credit score? Experian—one of the three major credit bureaus—explains the scoring system and breaks down the numbers for consumers. Here’s how exceptional, very good, good, fair, and poor credit are defined by the numbers:

  • 800 to 850 is the range for exceptional credit 
  • 740 to 799 is a very good credit score 
  • 670 to 739 is a good credit score 
  • 580 to 669 is a fair credit score  
  • 579 to 300 is known as a poor credit score 

Experian explains that only one in five Americans has an exceptional credit score. One in four Americans has very good credit, and 21 percent have good credit. A little more than 30 percent of Americans have fair and poor credit (15 percent have fair credit, but 16 percent have poor credit).

These ranges are important for consumers to understand, as each rating can impact an individual’s loan terms—specifically the interest rate. A poor credit score is perceived by lenders as a credit risk; this is why higher interest rates are typically applied to loans approved for this range.

AS the credit score increases, consumers may see more favorable interest rates. Those with exceptional credit might be able to easily be approved for those promotional zero percent interest rates touted by some dealerships.

What Credit Score is Needed to Buy a Car?

Buyers might wonder what credit score they need to buy a car or to be approved for a loan. The answer really just depends on the lender.

Some lenders approve loans to those with low credit scores or even individuals with no credit. Other lenders are focused on those with higher credit worthiness. These lenders might not approve loans to those with a poor credit score.

There are lenders who are willing to take a risk on those with poor credit and lenders who just won’t approve that type of loan. There isn’t a magic number for the perfect credit score to buy a car. Consumers with poor credit might simply need to find the best lender who will work with them.

However, those with poor credit might notice higher interest rates. When buying a car, they may need to focus on what monthly payment they can afford if they can only be approved for a high-interest loan.

Can Individuals Obtain their Credit Score?

Before looking for a new car, buyers might first check their credit report to get an idea about their credit score. Consumers can obtain a copy of their credit report from Experian, TransUnion and Equifax.

While the scores might not be an exact replica of what a lender might see, the scores available to consumers can help an individual better understand how their score stacks up in the ratings system.

Reviewing a credit report also can help individuals find errors or other issues that need to be fixed. For example, sometimes a debt has been paid but is still showing up as delinquent on the report. In fact, CNBC reported that 34 percent of Americans uncovered an error on their credit report.

Managing a Higher Interest Rate

Some buyers might not have the credit score needed to be approved for the lowest interest rates. However, buyers who face interest rates higher than they prefer could find ways to lower their monthly payment to offset the higher rate.

If a buyer has a trade-in, the value could help lower the price of the vehicle. A larger down payment also could help make an impact on the monthly payment. Buyers who know that they might face higher interest rates also could shop for lower-priced vehicles.

Shopping around for a loan with better terms also is always an option. If the buyer doesn’t feel comfortable with the loan terms, shopping around could help them feel more empowered.

Use Carzing to Find the Best Vehicle and Find Financing, Too

Buyers who are looking for a new or used vehicle can find all their options using Carzing. Search for cars by make/model, body type or price. Buyers also can choose from other criteria like fuel type, equipment, drivetrain and even color to ensure that they find the exact car they want and need.

Carzing also helps buyers find the best financing for their budget. Use Carzing to get prequalified for financing and choose the financing that offers the lowest monthly payment or the loan with the shortest loan term. Carzing even helps buyers understand how much they will need for the down payment.

While Carzing doesn’t require a social security number to help find financing, buyers will need to enter employment information and gross income. In addition, buyers also can include information about their trade-in.

Carzing helps buyers better understand what financing might be available to them, and getting prequalified won’t affect an individual’s credit score. Buyers who are interested in pursuing the financing they find via Carzing can fill out the credit application at the participating dealership, and, hopefully, finalize the deal to drive out in their new car.

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