How Important is My Credit Score When Purchasing a Car?
If you’re in the market to purchase a vehicle, you might want to consider how important your credit score is. Lenders use your credit score to determine the rate you’ll receive on a loan, and sometimes – if you’ll get a loan at all. Those who have higher credit scores receive the best rates, which results in lower monthly payments.
Having a history of credit with payments made on time proves to lenders that they aren’t really taking a huge risk by giving you a loan. If your credit history has late payments, unmade payments, or negative marks – it will be harder for you to get a good rate. Lenders expect compensation by taking these risks in forms of higher interest rates (Magnify Money).
So, let’s compare some numbers. In 2018, the average rate for a car loan for somebody with a credit score of 781-850 was 3.68% new and 4.34% used. Somebody in the 661-780 range received a 4.56% rate new and 5.97% used. If your credit score is 600 and below, you could be looking at rates as high as 11%-16% (Magnify Money).
While credit is very important in determining your auto loan rate, there are a few other aspects to consider. Auto lenders will consider your income, your existing debt, the amount of the loan you are applying for, the loan term, your down payment, and the vehicle you are purchasing (make, model, year).
If you’re interested in leasing, credit is very important here as well. If you have bad credit, you won’t necessarily be denied for a lease, you just have to know your options. For example, sources say the average minimum credit score to lease a car is 620. If you have lower than the average, it may take longer to be approved and you might have to put more money down and pay more for the lease. Leasing a vehicle can help those with lower credit scores, as it will help build your score as you make your monthly payments (BadCredit.org).
So, whether you’re interested in financing or leasing – just be aware of how important credit really is. The world would be a better place if high schools were required to teach students about credit. I personally didn’t know how important credit was until I graduated college.
If you’re trying to improve your credit score, keep these tips in mind:
- Pay every bill on time (every time)
- Keep your credit card balances below 20%-30% utilization
- Try not to make any huge purchases (via credit card) before you apply for a car loan
- Know what you can afford
- Find a co-signer (if necessary)
- Shop around for the best rate – whether it be your own bank or the dealership you’re purchasing from
There are also many apps and tools you can download on your smart phone to check your credit score, for free. Many bank apps will offer a credit tool within their apps, such as a FICO tool. Credit Karma is a very popular, free app that allows you to check your score at no harm.
BadCredit.org. Randall, M. What Credit Score is Needed to Lease a Car? March 2019.
Bankrate. Strohm, M. What Credit Score is Needed to Buy a Car? March 2019.
Google Images. March 2019.
Magnify Money by Lending Tree. Herigstad, S. What Credit Score is Needed to Buy a Car? March 2019.
NerdWallet. O’Shea, B. What Credit Score Do You Need to Buy a Car? March 2019.