What Is a Good Credit Score for a Car Loan?
If you are planning to buy a car, you might be wondering what are credit score requirements in order to qualify for a car loan. While there are many factors contributing to your terms and conditions, credit score certainly is the most important one. Here we will discuss the minimum credit score you need in order to qualify and give you some tips on how to improve it.
Now you are probably wondering what should your credit score be for a car loan. Well simply put, a good credit score for a car loan is considered anything above 740. However, keep in mind that this should give you only a general idea of the score, as it can be higher or lower depending on the lender you choose. In case your score is below this number don’t be discouraged as there are still options available for you. You may just need to put down a larger down payment or find a cosigner with a better score to get approved. The credit score to qualify for a car loan will be different depending on the lender you choose.
There is no ideal credit score for a car loan because it also varies depending on the vehicle you want to purchase. The credit score for a used car loan should be at least 670, and for a new one – about 730. Average credit score for a car loan people aim to have before even applying is about 700 if they are still unsure what exact car they want.
No matter what your current score is, don’t forget that you should always shop around to find the best deal. Even if your score is low and lenders keep rejecting you, there are many ways you can improve it and come back at a later time to get a good deal.
What Credit Scores are Used by Auto Lenders?
There are many different credit scoring systems in use today, and each one of them takes into consideration slightly different factors to calculate your final score. The most commonly used ones by auto lenders are FICO Score 8 and VantageScore 3.0. Both of them have a range from 300 to 850 but slightly different category ranges.
In general, for both of them, a score above 700 will give you plenty of opportunities to choose from. It goes without saying that the higher your score is, the better your chances of getting a good term with lower interest rates are. Every lender is different and so will offers be. There is no guarantee that you’ll be approved for a loan even if your score is good as there are other factors you should also look at such as your income.
If you’re not sure what your credit score is, you can always check it for free online or by calling your bank.
What Factors Contribute to Your Credit Scores?
There are many factors that go into your credit score. Depending on a scoring system, these factors can be slightly different but they typically include:
- payment history
- credit utilization
- length of credit history
- recent credit activity
No matter the credit scoring system your lender uses, payment history is the most important factor to keep in mind. Have you made all your payments on time? If you did, there is nothing to worry about. If you made a couple of payments a bit late, they will definitely affect your credit score. Credit utilization is also one of the key factors, which is why it’s important to keep your balances low.
The best thing is that all of these factors are not that hard to improve but it will take some time for that to happen. In order to improve your payment history, be sure to pay your bills as soon as they arrive. As for credit utilization, you should keep it under 30%. What this means is that you should use less than thirty percent of the credit available to you. Length of credit history can be improved by keeping old accounts open and in use instead of opening bunch of new accounts for different purposes. Once you checked all this off of your list, your credit score will soon start to rise but just be patient and stay consistent.
How to Get a Car Loan with Bad Credit?
Having bad credit can limit your options in many ways. While it definitely is more difficult to get a loan with bad credit, it is still possible. In case you don’t have time to wait and improve your score before applying we will give you a few tips.
- Check your credit score and report for errors if you think there are any- before you send your application it’s important to check your credit score and credit report for any errors. This will give you an idea of where you stand and if there are any red flags that lenders will see.
- Shop around for a better rate- once you know where you stand, it’s time to start shopping around for the best rates on a car loan. Even though your score is bad you can still land a few offers so be sure to compare them.
- Consider a co-signer- having bad credit doesn’t mean you have to settle for a high-interest rate or huge down payment. Consider finding a co-signer for your loan to get a better offer. This person will be responsible for making payments if you default on the loan, so be sure to choose someone who is willing to accept this.
- Be prepared to make a down payment- if you don’t want a co-signer, this may be your only option in order to get a good offer from a lender.
Now that you got familiar with the basics of the credit score needed for a car loan, as well as some tips on how to improve it, it’s time to think of your vehicle purchase! No matter if you choose to take out a used car loan or a loan for new vehicle think of different factors going into your score. There are various lenders offering this loan so take your time and find a deal that best fits your needs and capabilities. We suggest you take your time and improve your credit score because it will come in handy in many situations not just for taking out a loan.
If you need more help and guidance there are many advisors that can help you get your scores to a desirable level for some fee.