Man Buying Car

What Credit Score Is Needed To Buy A Car

Hanna Kielar4-minute read
January 04, 2022

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It’s important to know what credit score is needed to buy a car. Your credit determines how attractive you are to potential lenders and what you bring to the negotiating table when trying to secure an affordable monthly payment.

If you have great credit, you’re going to pay significantly less over the duration of a loan than someone with a poor credit rating.

What Do Auto Lenders Look For On Credit Reports?

A credit score is used to determine how likely someone is to make their loan payments on time and pay off their entire debt. While all credit scoring models use the same factors to determine your score, they vary in ways that could either help or harm you when you’re applying for a loan. Some key factors that determine your score include your payment history, credit utilization, the current debt you carry and your mix of credit types.

When people apply for a credit card or a loan, creditors obtain FICO® Scores from one of the major credit reporting agencies. Auto lenders use a special reporting system called FICO® Auto Score when determining the creditworthiness of a potential customer. The three credit reporting bureaus that contribute information to your FICO Auto Score are TransUnion®, Experian™ and Equifax®. A FICO® Auto Score may place more weight on whether you’ve made your monthly payments on past auto loans as opposed to accidentally missing a credit card or utility payment in the past, for example. 

Because your credit score can have such a dramatic impact on what you pay for an auto loan, you should check your credit score annually and make sure that your report is accurate. You can do this by enrolling in a credit monitoring service or contacting the credit reporting bureaus directly and requesting a free copy of your credit report.

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What Is A Good Credit Score To Buy A Car?

According to a 2021 report from Experian, the average credit score for used car loans in the United States is 665. New car loans have an average credit score of 732. Whether you’re looking for new or used cars, the rule of thumb when it comes to the credit score needed to buy a car is simply the higher the score the better. To secure the lowest rates, you should strive to improve your credit score until it’s above 800. It’s still possible to obtain auto loans with lower scores, but you’re likely to be subject to high interest rates on an auto loan if your credit is poor. 

Here’s how your credit score can impact your ability to get a car loan at different interest rates.

Credit Score

Average Auto Loan APR

Exceptional (800-850)

6%

Very good (740-799)

6-9%

Good (670-739)

9-15%

Fair (580-669)

15-17%

Poor (300-579)

17%

Source: U.S News and World Report

For Example

Skylar checked their credit report and found a credit score of 590. They’ll find it more difficult to get financed for a used car than their relative, Taylor, who has very good credit. It may be possible for Skylar to save a lot of money over the duration of the loan and lower their monthly payment if they ask for help from a co-signer.

If each person wanted to borrow $20,000 for 72 months, here is the difference in their monthly payments, interest and total cost on the loan.

 

Skylar

Taylor

Interest rate 

15% 

7% 

Monthly payment 

$423 

$341 

Total interest 

$10,449 

$4,551 

Total cost 

$30,449 

$24,551 

While most people pay attention to their monthly payments when considering a loan, credit scores impact the total cost of your vehicle due to their influence on your interest rate. A higher interest rate can cost you thousands more in interest over the term of your loan.

What Credit Score Is Needed To Buy A Used Car?

Credit score ranges indicate how much trust lenders have in borrowers. They are divided into five categories, from exceptional to poor. It’s much more difficult to finance a new vehicle than a used one. As noted above, the average credit score needed to buy a used car is 665, which means if you’re in the Good or Very Good credit range, your chances of obtaining a loan are high.

Here are the average interest rates for each credit score range.

 

Exceptional (800-850)

Very good (740-799)

Good (670-739)

Fair (580-669)

Poor (300-579)

New

6.09%

6.09-9.12%

9.12-15.11%

15.11-17.04%

17.04%

Used

6.34%

6.34-9.37%

9.37-15.36%

15.36-17.29%

17.29%

Source: U.S. News and World Report 

If your credit is fair or poor, you may want to try improving your credit score before applying for a loan. You can do this by paying down your credit cards and loans or by checking your credit score and contesting any inaccurate information or negative marks that are on your credit report. Other financing options that can save you some money include shorter-term loans and borrowing less money by putting more money down. You can easily check your credit score with our sister company Rocket HomesSM.

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Create a Rocket Account to check your credit score.

How To Buy A Car With Bad Credit

Improving your credit takes time, and you might not be able to wait years to purchase a vehicle. That said, you can still be approved for a car with bad credit. You may need to put more money down on the car, provide proof of income, or find a cosigner for your loan. 

One way to save money on your vehicle is to accept a loan at a higher interest rate and then refinance your car loan at a later date. Improving your credit takes time, but is possible as you continue to make student loan, credit card and other debt payments on time. Keep checking your credit score to see how it’s improved, so you know the right time to refinance your auto loan.

The Bottom Line

Your credit score determines your repayment cost on an auto loan. When you’re shopping for a vehicle, the purchase price isn’t the sole expense you need to consider. Checking your credit score before you seek a loan helps you know how easy it will be to get an auto loan and how much interest you might pay. If you want to save money, consider attempting to improve your credit before you apply for a loan.

Shopping at the most opportune times also helps your chance of receiving a loan and can save you thousands off the cost of the vehicle. Borrowing less money reduces the interest you’ll pay, and you may find better interest rates when you buy a car at the right time.

Ready to find the perfect fit?

Rocket AutoSM can help.

Ready to find the perfect fit?

Rocket AutoSM can help.

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Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto℠, RocketHQ℠, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.