What Credit Score Is Needed to Buy a Car?

Americans are borrowing more money than ever before to purchase cars. If you want to buy a new car, you'll almost certainly need a loan to help you pay for it. According to credit-reporting agency Experian, the average loan amount for a new automobile was over $35,000 and $23,000 for a used car in the second quarter of 2021. Americans owe nearly a total of $1.3 trillion on their auto loans.
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When you consider that the entry barrier isn't particularly high, these figures may seem less startling. According to Experian data, a good credit score for buying a car with a loan is normally above 660, although there is no industry-wide, official minimum.

Read on to find out how auto lenders utilize credit scores and how you can increase your chances of getting a vehicle loan even if your credit isn't ideal.

​What Credit Scores Are Used by Auto Lenders?

The FICO Score is the most widely used credit score, with 90% of leading lenders utilizing it. It's a multi-versioned general-purpose credit score. Business-specific scores are also available, including one for the auto financing industry.
It is up to them when it comes to the credit score methodology that each lender utilizes. Unless you ask potential lenders what credit score they look at, you won't know. If you want to see your credit score before applying for a loan, which we encourage, it's usually preferable to check your general-purpose FICO score.

What impact does my credit score have on my auto loan?

​Your credit scores may have an impact on your ability to obtain a car loan, as well as the interest rate and terms you are provided.
Before you start looking for a new or used car loan, it's a good idea to check your credit ratings and understand how they can affect the conditions you get from auto lenders. This is also a good time to double-check your credit reports for any inaccuracies that could lower your credit score.

​What is a good credit score for purchasing a vehicle?

In general, the lower the interest rate, the better the credit score. The average interest rates on a new car loan for each borrower category were as follows, according to Experian's second-quarter data:

• 2.34 % for super-prime (781-850).
  
• 3.48 % for prime (661-780).
  
• non-primary (601-660) 6.61 %age point
  
• Subprime (501-600) loans account for 11.03 % of all loans.
  
• 14.59 % for deep subprime (300-500).
  

Used car loans have even higher interest rates, with subprime borrowers paying 17.11 % and deep subprime borrowers paying 20.58 %.
For those with poor credit, some vehicle lenders may need a cosigner. A cosigner is an individual with good credit who agrees to legally assume responsibility for repaying the loan if the principal borrower fails to do so.

Is There a Minimum Credit Score Requirement to Get a Car Loan?

Car loan credit requirements differ by lender, and no industry guidelines are dictating which credit score a lender should use or what minimum score is required. Lenders have their standards for evaluating your credit and other financial considerations.

While your credit score and report are vital when looking for a car loan, lenders consider various factors when considering you for a new loan. They'll look at your salary, existing debts, and if you've paid off previous loans on schedule.

Lenders may also use your auto-specific credit score when making auto loans. The FICO Auto Score, for example, runs from 250 to 900, whereas your standard FICO or VantageScore scores vary from 300 to 850. A better score means the lender is taking a smaller risk in either scenario.
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In the end, creditors are looking for signs that you've handled debt properly in the past and will likely repay your new loan on schedule and in full. Any negative factor on your credit reports, such as a collection account or multiple late credit card payments, will stick out, so be prepared to explain any flaws. Getting loans with the best rates and terms may be more difficult if you have these types of bad entries in your credit history.

What elements go into determining my credit scores?

There are various keys to obtaining higher credit scores regardless of the scoring mechanism. The graphs below show the components of the FICO® 8 credit score and VantageScore® 3.0 credit score models.
Banks want you to repay what you borrow, and therefore your payment history is important to them. That's why your payment history, or how many on-time payments you've made on loans or credit cards, is such an important aspect in determining your credit scores. Making late payments will result in a payment history of less than 100%, which can negatively impact your credit score.

Utilization of credit
Credit usage is a method of determining how much of your overall credit limit is being used. Generally, you should maintain your total utilization as low as possible - most experts recommend keeping it under 30%.

Accounts age
The length of time you've had credit cards or other loans open is shown by the age of your credit history. The older your average account is, the better your credit scores will be. Meanwhile, having a lot of new accounts will lower your average account age, which will hurt your credit scores.

Combination of accounts
Your account mix, or the different sorts of credit accounts you have, could affect your credit scores. Lenders prefer to see that you have a track record of making timely payments on various credit accounts rather than just one. As a result, a combination of credit cards and other loans, such as auto loans, school loans, and mortgages, may help you improve your credit scores.

Inquiries
When you apply for credit, set up utilities, or rent an apartment, you will receive hard and soft inquiries. Hard inquiries linger on your credit reports for two years on average. Furthermore, if you have a high number of hard inquiries in a short period, it may damage your credit ratings since lenders may perceive you as a credit seeker.

​How to Raise Your Credit Score Before Purchasing a Vehicle?

Don't worry if your credit score isn't great just yet—you're not alone. Before applying for an auto loan from anywhere, there are several things you may do to enhance your credit score. Here are a few things you can do to improve your score reasonably quickly:

• Pay off any debts that are past due.
  
• Examine your credit report for any errors and register a dispute.
  
• Pay off as much revolving debt as you can (credit cards and other lines of credit).
  
• Hard credit checks should be avoided, such as those required when applying for new credit or services.
  
• If you don't have any old credit cards that you don't use, keep them open as long as they don't have an annual charge.
  
• Request increased credit limits on your credit cards (and don't spend the extra credit if it's not needed).
  
• Always pay your payments on time; if you're afraid about forgetting, set up autopay.
  
• To diversify your credit, open different types of loans and credit as you need them, such as school loans or credit cards.