What Credit Score is Needed to Buy a Car?

Have you checked out car ads online and scoured car dealerships but haven’t quite landed on a new (or used) shiny ride? You might also be wondering what kind of credit score you need and a handful of other credit-related questions when you buy a car.

We’ll take a closer look at the role credit plays when you buy a car and how your loan options can change depending on your score. Finally, we’ll introduce you to a few tips and tricks that you can use to get the score you need before you walk onto a car lot.

What is the Minimum Credit Score Needed to Buy a Car?

First, some good news for you if you have bad credit — there’s no official minimum score you need to have to buy a car. The specific credit requirements you’ll face when you get a car loan will vary depending on your lender.

Though some lenders do lend only to borrowers who have high scores, some auto loan providers focus on lending to people with low scores. This is because lenders know that they can charge higher interest rates when borrowers have low scores. You’ll almost definitely pay more for your loan over time, but it’s possible to get an auto loan with a poor score.

You might end up paying hundreds or even thousands of dollars more for your loan if you apply for a high-interest auto loan. Just a few percentage points of difference can mean a big change in the amount that you pay. Let’s look at an example.

Say you have an auto loan lender that offers loans for people with good credit and people with poor credit. If you have a credit score in the “good” range (above 670), the lender offers you a rate of 5% APR. If you have “poor” credit (a score between 300 and 579), the lender charges 8% APR.

Let’s say that you want to borrow $15,000 over five years to buy a new car. If you take the 5% loan for people with good credit, you’ll pay the lender about $283 a month and a total of $1,984 in interest. However, if you take the 8% loan, you’ll pay about $304 a month and a total of $3,249 in interest. Waiting to take a loan until you get in the “good” range would save you over $1,200. 

Thankfully, there’s Credit Builder Plus from MoneyLion. It’s a membership built to help improve your credit with a 5.99% APR loan. Take a loan, make small payments on time, and voila — you should see your credit score rise within a few months, even more after year. Then, with a higher credit score, you’ll likely get a much better rate on your car loan and save tons in interest. 

How Does Your Credit Score Affect Getting a Car Loan?

You might want to take time to improve your score before you submit an application so you get the lowest rates and the best lender options available. 

Credit Score and APR

You’ll see your annual percentage rate (APR) listed as a percentage when you apply for a loan. Your APR is the interest you pay per year on your loan’s outstanding balance. For example, you might borrow $10,000 at a 5% APR and you’d pay a total of $500 in interest per year on your loan, divided evenly over 12 months. As you pay down your loan, more of your monthly principal goes toward paying down your original balance.

The better your credit score, the less you’ll pay in interest on your loan. People with very low credit scores might pay 15% APR or more on their auto loan. On the other hand, borrowers who have high scores are less likely to skip payments in the eyes of lenders and will qualify for better auto loan interest rates. Borrowers with excellent scores might pay as little as 3% APR for their auto loan. Increasing your score by just a few points can help you access lower rates. 

Buying New vs. Used

The condition of the vehicle you’re buying can also affect your interest rate. In most cases, lenders charge you more in interest to buy a used car than a new car. This is because used cars usually have a lower resale value and are more prone to breakdowns and maintenance issues than new cars. If the lender has to repossess the car after you default, it’ll be harder to sell than a used car. Expect to pay a few percentage points more in interest if you want to buy a used car. 

How to Increase Your Credit Score

Are you thinking about applying for an auto loan? Save money and enjoy an easier approval by increasing your score before you buy. Use these quick and easy tips to see a higher credit score.

Watch Your Score with a Credit Monitoring Service

Ready to start on your journey toward a better credit score? First, sign up with a credit monitoring service. A credit monitoring service keeps tabs on your credit reports and alerts you whenever a new item appears on one or more of your reports. 

That way, you can catch fraud and identity theft early so you’re less likely to do damage to your credit score. Some credit monitoring services also allow you to do “soft checks” on your credit score, which allows you to view your score without damaging it.

Looking for the right credit monitoring service? MoneyLion offers a lot of tools you can use to track and improve your credit score. It’s included when you sign up for a Zero-Fee MoneyLion Checking account. 

Make Your Payments On Time

Your payment history comprises about 35% of your FICO credit score, which makes it the single most important factor in calculating your score. The fastest way to build great credit is to make sure that you always pay your bills on time. Paying more than the minimum each month on all of your bills will slowly but surely raise your score.

Are you the type who’s always struggling to balance multiple due dates? Set a cell phone reminder so you consistently make payments before the due date. This will ensure that your payment is recorded by the time your deadline arrives. 

Better yet, with a MoneyLion Credit Builder Plus loan, your small payments are automatically deducted for you on your pay dates. This makes it easier to pay, and you don’t have to remember a thing. And MoneyLion will report your payments to all three credit bureaus to help you build credit.

Consider a Secured Credit Card

You might assume that there’s no way you can get approved for a credit card if you have bad credit. This can feel like getting caught in a classic catch-22: You need a credit card to make on-time payments and increase your score but you can’t get a credit card without good credit.

The solution to this predicament could be a secured credit card. Secured credit cards are cards that have collateral. You can build up your credit without forcing your lender to take on the risks of unsecured lending. It’s a win-win for everyone involved.

You’ll put a deposit down with the credit card company when you sign up for a secured credit card. That deposit then becomes your line of credit. So, for example, if you put $300 down to open the card, you’ll get a $300 line of credit. You can use the card exactly like a regular credit card, making payments and paying off your balance each month. The credit card company reports your payments to the credit reporting bureaus and your score increases. Your lender refunds your deposit if you decide to close the card.

Secured credit cards are a great way for people with bad credit or no credit to improve their scores. Just remember to make all of your payments on schedule — late or missed payments still hurt your numbers.

Become An Authorized User

Becoming an authorized user on a trusted friend or family member’s account is a simple way to build credit. Credit card accounts have two types of users: primary users and other authorized users. Authorized users can “piggyback” off the on-time payments and low utilization of the primary account holder. You don’t even need to contribute toward the bills or use the account in any way to get the benefits.

Ask a family member or friend with great credit if you can become an authorized user on one of his or her accounts. However, choose whose credit you want to share carefully. However, your score will go down if the primary cardholder starts racking up debt or missing payments. 

Limit Your Other Loan Applications

Avoid applying for any other types of credit when you’re getting ready to apply for an auto loan. Your lender will get permission to do a “hard inquiry” on your credit reports prior to you getting your loan. Hard inquiries appear on your reports and temporarily lower your score. This system is in place to discourage you from applying for a lot of credit at once. 

Be Patient

Improving your credit score is a marathon — not a sprint. It may take a few months before you see an increase in your score. This is because it can take some time for credit reporting bureaus to receive, organize, catalog and archive your payment data. Continue making your payments on time and manage your money well and you’ll eventually see your score increase. 

Driving Off With a Brand New Credit Score

It can be tempting to start applying for new cars ASAP. However, when it comes to getting the best loan rate possible, it’s usually better to wait until you have a score in the “good” range. Taking just a few months to improve your credit can save you thousands of dollars in the long haul. Check out Credit Builder Plus for an easy-to-follow credit building program that helps you get cash now, including 0% APR Instacash cash advances.

Are you ready to start improving your credit score? Sign up with MoneyLion today by downloading the free app in the Google Play or Apple App store. 

Disclosure

MoneyLion Checking Account provided by, and MoneyLion Visa® Debit Card issued by, Lincoln Savings Bank, Member FDIC. Terms and conditions apply.

Investment advisory services provided by ML Wealth, LLC. Investment Accounts Are Not FDIC Insured • No Bank Guarantee • Investments May Lose Value. For important information and disclaimers relating to the MoneyLion Investment Account, see Investment Account FAQs and FORM ADV. Broker-Dealer may charge a $0.25 withdrawal fee, among other fees. Funded accounts are subject to administrative fee of $1 per quarter.

Current Credit Builder Plus membership required for Credit Builder Plus loan eligibility; the $19.99 monthly fee will be withdrawn from your linked bank account.  All loans with an Annual Percentage Rate of 5.99% are made by either exempt or state-licensed subsidiaries of MoneyLion Inc. The Credit Builder Plus loan may, at lender’s discretion, require a portion of the loan proceeds to be deposited into a reserve account managed by ML Wealth, LLC and held by Drivewealth LLC, member SIPC and FINRA. The funds in this account will be placed into a money market cash management or FDIC bank sweep vehicle, and may generate interest at prevailing market rates.  You will not be able to access the portion of your loan proceeds held in the credit reserve account until you have paid off your loan, and so long as your Credit Builder Plus membership payments are current. If you default on your loan, your credit reserve account may be liquidated by the lender to partially or fully satisfy your outstanding indebtedness. May not be available in all states.Credit Reserve Accounts Are Not FDIC Insured • No Bank Guarantee • Investments May Lose Value. For important information and disclaimers relating to the MoneyLion Credit Reserve Account, see Investment Account FAQs and FORM ADV.

A Credit Builder Plus loan may or may not improve your credit score. Credit scores are the result of your personal credit practices.

Cash advance requires current membership in Credit Builder Plus ($19.99 monthly fee) or Instacash with Banking ($9.99 monthly fee) membership programs. Instacash with Banking monthly fee is waived for members who connect and maintain recurring eligible direct deposits into their MoneyLion Checking Accounts. All Credit Builder Plus and Instacash with Banking members are automatically eligible to access either $25 or $50 of cash advance, depending on creditworthiness.  Members can increase their cash advance limit to up to $250 by connecting and maintaining recurring eligible direct deposits into their MoneyLion Checking Accounts and after up to three consecutive direct deposits have cleared, or at MoneyLion’s discretion. See Membership Agreement and Cash Advance FAQs for more information.

MoneyLion rewards points are subject to terms and conditions, see here.

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