What is a good credit score for buying a car?

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While there is no minimum credit score for buying a car, don’t get too excited. Just because you can buy a car without credit doesn’t mean you should.

A lower score means less favorable loan terms. And in many cases, you will end up paying a lot more interest.

So what is a good credit score when you want to buy a car?

There is no single answer, but this guide shows what to expect with different credit ranges. Then you can decide what is “good enough” for you.

What is a good credit score for buying a car?

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No matter your credit score, someone will be ready to lend you money for a car.

While some lenders may turn you down based on your credit, rest assured that others will be happy to give you a loan, at least for a fair price.

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The riskier you are as a borrower, the more interest you will pay. And, you will have to overcome more obstacles to be approved.

To avoid the worst hassles, you will have to make yourself less risky for the lenders.

Lenders start offering better interest rates once your score goes over 600. If you don’t know your current credit score, you can check it online for free.

For the lowest fares, you should aim for a score of 725 or higher.

And, if 725 feels light years away, take comfort in knowing that most car buyers don’t quite fall into this category.

What if I have a score below 700?

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You can still get a car loan with a score below 700 but there will be questions.

A lender will likely tell you about the negative points on your credit report. It might sound intimidating, but it’s actually an opportunity to make your case.

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Word your explanation to show:

You can also take this opportunity to highlight the positive aspects of your credit report.

You may be asked to bring in a co-signer

If you have poor credit, you can increase your chances of getting approved (and even get better rates) by recruiting a co-signer.

A co-signer reduces the lender’s risk – if you don’t pay back your loan, your co-signer will be responsible.

Still, it can be a great favor to ask. If you’re wrong, you could damage the finances of the co-signers (and potentially your relationship with them).

Finally, remember that not all car dealers are created equal. Some are more accommodating than others, so if one turns you down, move on to the next.

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Try to improve your score

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Instead of going with a co-signer or accepting exorbitant interest rates, you are often better off taking the time to build your credit rating.

Your wallet will thank you.

Here are some credit boosting tips to get you started.

Get your score for free

The first step in building your score is knowing where you stand now. Here’s how to check your credit score for free.

Keep in mind that your auto lender may check your score using a slightly different scoring model that puts more emphasis on your auto loan payment history.

You can purchase a self-specific report for yourself, but it is not necessary. As long as you improve your basic credit score, you will begin to qualify for better rates.

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Credit bureaus keep a variety of information, including whether or not you make timely payments.

How long credit bureaus keep information on your report depends on several factors, including the province or territory where you live, the type of financial information, and the agency that created the report.

Use a secure credit card

Using credit cards to build a reliable payment history is one of the easiest ways to improve your credit score. The problem is, if your credit is low, it can be difficult to get credit card approved in the first place.

This is where secured credit cards come in.

They are designed to help riskier borrowers prove themselves and build credit. The catch is, you’ll need to provide a security deposit that the issuer will take if you don’t pay your bills.

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A car loan will also help you score

Once you are finally approved for a car loan, you can take advantage of it to boost your score even further.

The biggest influence on your credit score is the payment history. When you make your car payment on time each month, your lender will report it to the major credit bureaus (so don’t be late).

Auto loans also improve your score by helping you with your credit mix. If the only type of credit you currently have is a credit card (i.e. revolving credit), adding an installment loan will help improve your score.

As you continue to build your credit, it may be a good idea to refinance your auto loan in the future when you qualify for better rates.

Waiting is not a bad idea

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Waiting to take out a car loan allows you to:

All of these actions will help you get a more affordable loan.

In the meantime, avoid seeking any other form of credit. If serious requests are made on your account, your score will be temporarily affected.

Finally, on the day of purchasing your race, opt for a used car, keep the financing term to a maximum of four years, and make as large a down payment as possible (aim for 25% or more).

This will minimize interest payments and help you avoid negative equity (due to more than the value of the car).

What you will need to close the auto loan

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There are two main ways to get auto credit.

Whichever route you take, you will need to gather documents to submit with your application.

Documents

The documents required for a loan application vary from lender to lender, but often include:

To avoid a lost trip, call your lender (or dealer) ahead of time to make sure you have everything.

This article was created by Wise Publishing, Inc., which provides clear, reliable information people can use to take control of their finances. Millions of readers across North America rely on the Toronto-based company to help them save money, find the best bank accounts, get the best mortgage rates, and navigate many other financial matters.