When you apply for an auto loan, lenders most commonly review your FICO Auto Score, a version of your credit score tailored for vehicle financing. This is the primary answer to what credit score is used to buy a car, but the full picture is a bit more detailed. Understanding which score they check and why can help you prepare and secure the best possible loan terms.
Your credit score is a key factor in the car-buying process. It influences not just your approval, but your interest rate and monthly payment. This guide will explain the specific scores lenders use, what ranges are considered good, and how you can improve your standing before you visit the dealership.
What Credit Score Is Used To Buy A Car
While you might check your VantageScore or a generic FICO score, auto lenders have a specialized tool. The industry standard is the FICO Auto Score. It is a credit score model specifically designed to predict your likelihood of repaying an auto loan.
This score ranges from 250 to 900, unlike the more common 300-850 range. It weighs your credit history differently, placing more importance on your past performance with auto loans and installment debt. If you have a strong history of paying car loans on time, your FICO Auto Score could be higher than your base FICO score.
Lenders purchase this specific score from the three major credit bureaus: Experian, TransUnion, and Equifax. They often check your score from all three and use the middle score for their decision. If you apply with a co-signer, they will typically use the lower of the two middle scores.
Why Lenders Use Specialized Auto Scores
Lenders use the FICO Auto Score because it gives them a more accurate risk assessment for a specific type of debt. Your behavior with revolving credit, like credit cards, is different from handling an installment loan. The auto score model is fine-tuned to highlight relevant financial behavior.
For example, a late payment on a previous car loan will hurt your Auto Score more than it might hurt your general FICO score. Conversely, a solid history of timely auto loan payments can boost it. This specialization helps lenders make more informed and fair decisions.
The Role Of Credit Bureaus
Lenders pull your auto score from one or more credit bureaus. It’s important to know that the information on your reports can vary. One bureau might have an error or an account the others do not. This is why your scores can differ between bureaus.
Before you apply for a loan, it’s a smart move to check your reports from all three bureaus for free at AnnualCreditReport.com. Look for and dispute any inaccuracies, as these can unfairly lower your score and cost you money.
Common Credit Score Ranges For Auto Loans
Lenders categorize scores into ranges to determine loan eligibility and rates. While the FICO Auto Score uses a 250-900 scale, lenders often translate these into the familiar tier names. Here’s a general breakdown of how scores are viewed:
- Super Prime: 781 and above. Qualifies for the lowest available interest rates and best terms.
- Prime: 661 to 780. Considered good credit, likely to secure competitive rates.
- Non-Prime: 601 to 660. May face higher interest rates and more scrutiny.
- Subprime: 501 to 600. Approval is less certain, and loans come with high interest rates.
- Deep Subprime: 500 and below. Very difficult to secure traditional financing; may require a special lender or a large down payment.
Remember, these are guidelines. Some lenders specialize in loans for people with lower credit scores, but you will pay more in interest over the life of the loan.
How Your Credit Score Affects Your Car Loan
Your credit score directly impacts two critical components of your auto loan: approval and the Annual Percentage Rate (APR). A higher score signals to the lender that you are a lower risk, which they reward with better terms.
The difference in interest rates between score tiers can amount to thousands of dollars over a loan term. For instance, on a $30,000 loan over 60 months, a borrower with a score in the prime range might get a 7% APR, while a borrower in the subprime range could be offered a 15% APR or higher. The monthly payment and total interest paid would be significantly higher for the subprime borrower.
Interest Rates By Credit Tier
To illustrate the real cost, here is a simplified example based on average rates. Your actual rate will depend on the lender, loan term, and market conditions.
- Super Prime (781+): ~5% APR. Monthly payment on $30,000: ~$566.
- Prime (661-780): ~7% APR. Monthly payment: ~$594.
- Non-Prime (601-660): ~11% APR. Monthly payment: ~$652.
- Subprime (501-600): ~16% APR. Monthly payment: ~$729.
As you can see, a lower credit score directly increases your monthly financial commitment. This is why improving your score before you apply is one of the most valuable financial moves you can make.
Down Payment Requirements And Credit Scores
Your credit score also influences how much money you need to put down. Lenders use the down payment to reduce their risk. If you have a lower credit score, a larger down payment can help you get approved and potentially secure a slightly better rate.
A common guideline is to aim for at least 10% down for a used car and 20% for a new car. However, if your credit is subprime, a lender may require 15-20% or more on a used vehicle. A substantial down payment shows you have “skin in the game” and reduces the chance the loan will go “underwater,” where you owe more than the car is worth.
Steps To Check And Improve Your Credit Before Buying
Preparation is key to getting a good auto loan. You should start this process several months before you plan to buy. Here are the steps to take.
1. Obtain Your Credit Reports And Scores
First, know where you stand. Get your free annual credit reports to check for errors. Then, look for services that provide your FICO Auto Score specifically. Some auto loan websites and certain credit monitoring services offer this specialized score. Don’t rely solely on the free VantageScore provided by many apps, as it is not the score most lenders use.
2. Dispute Any Errors On Your Reports
If you find mistakes—like an account that isn’t yours, an incorrect late payment, or an outdated balance—dispute them immediately with the credit bureau. Correcting an error can sometimes give your score a quick boost.
3. Pay Down Existing Debt
Your credit utilization ratio, which is the amount of revolving credit you’re using compared to your limits, is a major factor in your score. Aim to pay down credit card balances to below 30% of your limit, and ideally below 10%, before applying for a loan. This is one of the fastest ways to improve your score.
4. Make All Payments On Time
Payment history is the most significant factor in your credit score. Set up automatic payments or calendar reminders to ensure you don’t miss any due dates. Even one recent late payment can have a notable negative impact.
5. Avoid Opening New Credit Lines
In the months leading up to your auto loan application, avoid applying for new credit cards or personal loans. Each application triggers a hard inquiry, which can temporarily lower your score by a few points. Multiple inquiries in a short period can look like you’re in financial distress.
Note that FICO scoring models typically treat multiple auto loan inquiries within a 14-45 day window as a single inquiry, allowing you to rate-shop without excessive penalty. This is an important exception to the rule.
Getting A Car Loan With Bad Or No Credit
If your credit score is low or you have a limited credit history, getting a car loan is more challenging but not impossible. You have several options, though they often come with higher costs.
Consider A Co-Signer
A co-signer with good credit agrees to take responsibility for the loan if you fail to pay. This greatly reduces the lender’s risk and can help you get approved for a loan you wouldn’t qualify for on your own. It can also secure you a much lower interest rate. Be aware that this is a major commitment for the co-signer, as any missed payments will damage their credit as well.
Save For A Larger Down Payment
As mentioned earlier, a larger down payment is your most powerful tool when you have poor credit. It reduces the amount you need to borrow and shows the lender you are serious. Saving up 20-25% or more can make the difference between approval and rejection.
Seek Out Specialized Lenders
Some lenders, including certain credit unions and “buy-here-pay-here” dealerships, specialize in high-risk auto loans. Be very cautious. While they may offer approval, the interest rates are often extremely high, and the loan terms can be unfavorable. Always read the contract carefully and calculate the total cost of the loan.
Build Credit With A Secured Loan Or Credit Card
If you have time, consider building your credit first. A secured credit card or a small credit-builder loan from a credit union can help you establish a positive payment history. After 6-12 months of on-time payments, your score may improve enough to qualify for a better auto loan.
The Car Buying Process: From Score To Sale
Once you’ve prepared your credit, it’s time to navigate the buying process strategically. Follow these steps to protect your credit and get the best deal.
Get Pre-Approved First
Before you set foot on a dealership lot, get pre-approved for a loan from a bank or credit union. This gives you a firm budget and an interest rate to use as a benchmark. A pre-approval is a conditional commitment from a lender, and it allows you to negotiate with the dealer as a cash buyer. The dealer’s financing department may still try to beat your pre-approval rate, which can work in your favor.
Focus On The Total Loan Amount, Not Just The Monthly Payment
Dealers often try to negotiate based on a monthly payment. This can be misleading, as they can extend the loan term to lower the payment while increasing the total interest you pay. Always negotiate the out-the-door price of the car first. Then, discuss financing terms, focusing on the loan amount, APR, and total cost.
Understand The Impact Of Loan Term
While a longer loan term (72 or 84 months) lowers your monthly payment, it means you pay more in interest over time and risk being upside down on the loan for many years. Aim for the shortest term you can comfortably afford, ideally 60 months or less. This saves you money and builds equity in the vehicle faster.
Frequently Asked Questions (FAQ)
What Is The Minimum Credit Score To Buy A Car?
There is no universal minimum score, as lenders have different standards. Some subprime lenders may work with scores as low as 500, but you will face very high interest rates. A score of 660 or higher generally opens up access to prime lending rates from most banks and credit unions.
Do Car Dealerships Use FICO Or VantageScore?
Almost all dealerships and their lending partners use FICO scores, specifically the FICO Auto Score versions. While you might see your VantageScore on free credit sites, it is rarely used for auto loan decisions. You should focus on your FICO scores when preparing to buy.
Can I Buy A Car With No Credit History?
Yes, but it can be difficult. Lenders have no payment history to evaluate. Your best strategies are to apply with a co-signer, save for a very large down payment, or seek a lender that specializes in first-time buyer programs. Some manufacturers also offer special incentives for recent college graduates.
How Many Points Does Your Credit Score Drop When You Buy A Car?
Applying for the loan will cause a hard inquiry, which may lower your score by 5-10 points temporarily. Taking on the new debt will also cause a dip, as it affects your credit mix and average account age. However, these effects are usually short-lived. Making your payments on time will rebuild your score and, over time, the positive payment history will help it grow.
Does Checking My Own Credit Score Hurt It When Buying A Car?
No. Checking your own credit report or score is considered a “soft inquiry” and does not affect your credit score at all. You should check your own credit regularly without worry. Only applications for new credit made by lenders result in hard inquiries that can impact your score.