What Credit Score Is Needed to Buy a Car?

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No matter how much love and care you put into them, cars don’t last forever. Whether they break down or don’t suit you anymore, eventually it’ll be time to start searching for a new or used ride.

If you find yourself in this situation, you might also be wondering what credit score is needed to buy a car and how credit factors into the car purchasing process. 

This article explores the role credit plays when you buy a car, how your loan options can change depending on your score, and tips and tricks 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?

If you have bad credit, you might be happy to hear there’s no official minimum credit score requirement to purchase a new vehicle. That’s not to say bad credit won’t matter, though — it makes it harder to get a good rate on your loan. 

Lenders may have their own credit requirements and may take your credit into account when drawing up your financing options. Some lenders have their own standards and only lend money to borrowers who have high scores. 

Some auto loan providers focus on lending to people with low scores because lenders know that they can charge higher interest rates when borrowers have low scores. It is possible to obtain an auto loan with a low score but it will come with extra cost. 

Just a few percentage points of difference can mean a big change in the amount you pay, which sometimes can add up to thousands of dollars in the long run.  

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How does your credit score affect getting a car loan?

If you don’t need to get a car immediately, you may want to try improving your credit score before applying for a car loan. Doing so gives you a better chance of getting a lower rate and more options among lenders.

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, if you borrow $10,000 at a 5% APR, 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.

Typically, the better your credit score, the less you’ll pay in interest on your loan because the lender views low credit scores as a risk and wants to be compensated accordingly in case the borrower misses payments. On the other hand, lenders view borrowers with high credit scores as less likely to skip payments, so they often qualify for better auto loan interest 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. Older cars are more likely to break down, leading to costly repairs on a vehicle that’s no longer under warranty. Paying for those maintenance and repair costs may wind up breaking the bank, leaving you unable to pay your loan. If the lender has to repossess the car, it’ll be harder to sell. Used cars are also worth less off the bat, so the lender will have a harder time recouping the money they gave out. Expect to pay a few percentage points more in interest if you want to buy a used car. 

The length of the loan offered may be shorter for a used car than for one that’s purchased new. That gives the car less time to break down, protecting the lender’s investment. 

Credit score and car insurance rates

Better credit scores typically mean better auto loan rates. Even a boost of just a few points in your credit score may be enough to convince your lender that you’re worthy of a lower interest rate.

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How to increase your credit score

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

1. 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 see 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 it without damaging it.

The credit monitoring agency you partner with should be tailored to your needs. For instance, you may want to choose one that offers a credit score based specifically on what auto lenders keep an eye on, so you get a score that predicts what car loan rates you’ll be offered.

2. Make your payments on time

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

That’s one of the reasons you may want to wait before taking out an auto loan. Take some time to pay extra on the bills you already have, thereby increasing your credit score. That way you get a lower rate on your loan and don’t have to pay quite as high an APR, so you increase your chances of being able to pay on time moving forward. 

If you find yourself struggling to balance multiple due dates for your loans, there are a couple of options to help out. You could set a reminder on your cell phone to notify you about a due date so you make the payment before then. You could also consolidate your loans so that you only have to keep track of one.

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 to ensure that your payment is recorded by the time your deadline arrives. 

3. Consider credit-builder loans

Another option to help you improve your credit score is a credit-builder loan. These work a bit differently from money you’d normally borrow, and they’re designed specifically to help raise your credit score.

With a credit-builder loan, you take out money that you pay back in installments, proving to would-be lenders that you’re capable of paying the bill on time consistently. However, the money you’re paying goes into a separate bank account and is held for you until the life of the loan has come to a close. That raises your credit score but doesn’t put you in a situation where you’re putting money into something you don’t need.

4. 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 your credit without forcing your lender to take on the risks of unsecured lending. Both you and the lender benefit. 

When you open a secured credit card, you’ll put a deposit down with the credit card company at the start of the process. 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 will refund 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.

5. 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 and authorized. Authorized users can piggyback on the timely 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 their accounts. Choose whose credit you want to share carefully. You should trust them to keep their credit score high so you can benefit. Remember, your score could go down if the primary cardholder starts racking up debt or missing payments. Likewise, you shouldn’t do anything to harm their score. 

6. 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 report before you get 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. If you are applying for multiple loans, those hard inquiries will stack up and do major damage to your score, resulting in higher interest rates.

7. 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. 

Credit impacts auto loans

It can be tempting to start applying for loans for a new car ASAP. But when it comes to getting the best loan rate possible, it’s usually better to wait until you have a credit score in the good range. Taking a few months to improve your credit can save you thousands of dollars in the long haul. 


Can I get a car loan with a co-signer if my credit score is low?

Yes, having a co-signer to vouch for you lets the lender consider that person’s credit history as well. If they are in good standing, it may work in your favor to get a better loan option.

Can I still negotiate car prices if I have a low credit score?

Yes, it never hurts to try to get the best price available.

Will my credit score be affected if I am rejected for a car loan?

Although being rejected for an auto loan doesn’t automatically bring your credit score down, being forced to continue seeking loans may do damage. Each time you apply for a loan, the lender does a hard inquiry into your credit, which temporarily lowers your score. If you have to apply repeatedly, your credit score may drop.

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