Auto.com logo

Find your perfect car.

What Credit Score Is Needed to Buy a Car?

Posted by Auto.com Staff | Jan 3, 2019

Your credit score can have a big impact on the overall cost of a new car. The interest rate on a used or new car loan is associated with risk – the riskier a loan applicant, the higher the interest rate on their auto loan. One big factor in having good credit is paying bills on time, so banks and other loan issuers use credit scores when calculating a borrower’s risk.

For this reason, a better credit score typically means a lower interest rate. Since a lower interest rate means paying less in interest, it means the overall cost of the car loan is lower. Credit scores are pulled from credit reports, and may vary from one credit report agency to another. If you notice a big difference in the number on one credit report from the others, that may indicate a serious discrepancy, and you should investigate it. Your credit score should be around the same range for the three largest credit bureaus: Equifax, Transunion and Experian.

For most auto loans, a good credit score is known as a Prime credit score rating. The score range can vary, but it is usually around 660 to 780. If your credit score is above this, it is considered Super Prime. A credit score in the Prime range means you shouldn’t have too much trouble getting an auto loan. A credit score in this range also means you should qualify for a decent interest rate on your car loan.

Lower credit scores, in the 600-660 range, are considered Nonprime. A score between 500 and 600 is Subprime, and anything below that is Deep Subprime. In most cases, a lower credit score will mean a higher interest rate – if you are able to qualify for a loan at all. When auto loan lenders are evaluating whether or not to issue a loan, they aren’t just looking at an applicant’s credit score.

Many factors, such as income history, total down payment amount and credit history, can factor into a lender's decision to issue an auto loan. A low credit score is less of a concern to a lender if they can prove that they have a history of paying their bills on time. And the more money you are able to pay up front means the lender is taking on less risk.

The best thing to do when looking to finance a car is to do your research. Know your credit score, and what is on your credit report. A lender may ask about specific items on your report. Shop around. Just because one lender is not willing to finance you does not mean you are out of luck. There are some lenders that actually specialize in loans for high-risk borrowers with poor or bad credit. 

There are other ways to make you appear more appealing to car loan lenders. Paying down any existing credit card debt will improve your debt to income ratio. Paying more every month on your credit card can also help improve your credit score. You might consider getting a cosigner can help lower the interest rate you qualify for - especially if they have a stellar credit score. Understand though that a cosigner is assuming some of the responsibility of your car loan. That means that if you slip up, this loan could damage their credit. Another option is to save up a sizable down payment - 25% or more of the car's value. This can also reduce the amount of your overall car loan.

Bad credit or a low credit score does not automatically mean that you cannot qualify for a car loan. But it is important to understand that you may end up paying with higher monthly payments due to the higher interest. However, if you are able to qualify for a loan, and you are good about making your payments on time, you should be able to improve your credit. Improving your credit history this way means you may qualify for a better interest rate down the line - on a credit card or an auto loan.