What credit score is needed to buy a car? – USA TODAY Blueprint

When you apply for new financing — auto loans included — one of the details a lender is certain to review is your credit score. There’s no universal minimum credit score you must meet to qualify for a car loan. But if you have bad credit, it could be more difficult to find affordable auto financing options. 

Here’s what you need to know about how your credit score impacts your car-buying experience, including the interest rate you might have to pay when you finance a vehicle. You’ll also learn what credit score lenders look at when you apply for a car loan and tips on how to improve your credit score before buying your next vehicle. 

What credit score do you need to buy a car? 

Every lender makes its own rules when it comes to the minimum credit score you need to qualify for a loan. Some lenders set their credit score cutoff points at a higher level. Others may be comfortable working with consumers who have lower credit scores (and charging more for the extra level of risk). 

If you have a higher credit score, you should have more borrowing options available to you. As your credit score declines, however, the number of auto lenders that are willing to work with you may start to shrink as well. 

Experian, one of the three major credit bureaus, releases a report each year called the State of the Automotive Finance Market. Here’s how many U.S. consumers were able to secure car loans in 2022 based on their credit score range. 

How your credit score affects your auto loan

Not only will your credit score impact the auto loans for which you’re able to qualify, it can also influence the interest rates and fees lenders charge you when you borrow money to buy a vehicle. 

The average auto loan amount consumers financed in 2022 was $41,445 according to Experian. If you break that average loan amount down over a 60-month new auto loan, here’s how your FICO® Score could impact both your monthly payment and overall interest costs. 

As you can see, a bad credit score has the potential to cost you hundreds of extra dollars each month in interest costs, and tens of thousands of dollars over the course of your auto loan. So, it’s important to formulate a plan to fix and repair bad credit before you apply for an auto loan.  

Ways to qualify for a loan with bad credit

Qualifying for a car loan with bad credit can be a challenge. However, there are steps you can take to improve your chances. 

• Provide a bigger down payment. If you can afford to put up a larger down payment, it might help you qualify for an auto loan despite having a bad credit score. 
• Use a cosigner. Adding a cosigner with good credit to your loan application might improve your chances of qualifying for a loan when you have credit problems. But be aware that you’re asking your friend or family member to take a significant risk by cosigning for your credit obligation as they become responsible for payments if you default. 
• Shop around. Comparing multiple lenders that offer financing options to consumers with less-than-perfect credit could be a good way to discover what types of bad credit loans may be available to you (and whether any of these options are a good fit for your financial situation). 

What credit score do lenders look at? 

Most lenders (90% of top lenders to be precise) use FICO® Scores. VantageScore® credit scores are another popular credit score brand that lenders use in the United States. Over 3,000 companies used 14.5 billion VantageScore credit scores between 2021 and 2022. 

When you apply for an auto loan, there’s a good chance the lender will use either a FICO or VantageScore credit score to review your creditworthiness. However, there are different versions of FICO and VantageScore credit scores as well. 

For example, VantageScore comes in four different versions (1.0, 2.0, 3.0, and 4.0). FICO has released even more versions of its scoring algorithms since the company was founded in 1956. 

FICO Scores also come in different varieties. There are base FICO Scores that range from 300-850. Many auto lenders also use some version of the FICO® Auto Score that features a credit score range of 250-900, which can include any history you may have with previous car loans. With either type of credit scoring model, having a higher score tells a lender that you’re more likely to pay your future bills on time and a lower score communicates that you may be a high-risk customer. 

Tips for improving your credit score before you buy

There’s no one-size-fits-all way to improve a credit score. Nonetheless, the following good credit habits can be a good place to start. 

• Review your credit reports for errors. It’s important to check your credit reports from Equifax, TransUnion, and Experian and review them for accuracy. If you find mistakes on your reports, such as fraudulent accounts, those errors could drag your credit scores down in an unfair way.
• Dispute credit report errors. The Fair Credit Reporting Act (FCRA) allows you to dispute any errors you discover on your credit reports. You can visit the Federal Trade Commission’s website to access a free sample dispute letter template. 
• Pay down credit card balances. Reducing any credit card debt you have can save you money on high interest charges and lower your credit utilization rate (aka your credit card balance-to-limit relationship) at the same time. The lower your credit utilization rate falls, the better from a credit score standpoint.
• Consolidate credit card debt. Using a balance transfer credit card or a lower-rate installment loan to consolidate your credit card debt might be worth considering if you know it’s going to take some time to pay down your credit card balances.  

How to check your credit score

It’s critical to check your credit reports on a frequent basis. And you’ll want to keep an eye on your credit scores as well to keep tabs on your progress and overall credit health. 

Here are some resources you can use if you’re interested in checking your credit score. 

• myFICO: Access your three credit reports and FICO® Scores for a fee — starting at $29.95 per month. 
• Experian: Experian gives consumers access to one free FICO® Score 8 and Experian credit report each month. Be aware that the website will also try to sell you additional credit scores and credit reports every time you login. 
• Equifax: Access a free VantageScore 3.0 credit score once a month through the Equifax Core Credit™ program. 
• Credit card companies and banks: Your credit card company or bank might provide you with free access to your credit score (FICO or VantageScore) each month as a courtesy. 
• Credit monitoring programs: There are many free and fee-based credit monitoring services available online. In general, free programs tend to offer more limited options (e.g., non-FICO Scores, more limited credit reports, etc.). You might also have to view advertisements or accept email solicitations in exchange for your free scores.