What is a Good Fico Score for Buying a Car?

Your credit score, known as the Fair-Isaacs Company (FICO) score, will be very important when you decide to purchase a new vehicle. Lenders review your credit score to determine how much interest you will be charged or even if you qualify to purchase a vehicle at all.

Auto Loan Ranges

Not all lenders have the same requirements regarding credit scores. If your credit score is between 740 and 850, it is considered excellent, which means you will be eligible for lower interest loans and more favorable terms. Most experts say that with a score in the excellent range, you will likely get an interest rate of between zero and 3.2 percent. A credit score in the range of 680 to 739 is considered an average score, so interest rates and terms may be less favorable. For most people with an average score, interest rates will range from 3.3 to 4.5 percent. If your credit score is 680 or below, you are considered a sub-prime borrower and can expect to pay the highest rates on a car loan. The average for poor credit vehicle loans is usually higher than 6.5 percent, with some ranging as high as 15 to 25 percent.

Why Is Credit Score Important?

Your credit score lets lenders know how big of a risk you are when they decide to lend you money. Increased credit risk means that a lender must place a risk premium to the price you must pay when you borrow. This means that even if your credit is poor, you will probably be able to find a lender who will provide you with an automobile loan. However, the cost of that credit will be significantly higher than it would be for someone with good credit.

Determining Credit Score

There are five factors that go into determining your credit score and each are weighted differently as part of the score. These include your previous credit performance, current level of debt, time credit has been in use, types of credit you have available and the pursuit of new credit. Your history of credit payments has the most impact on your credit rating.

Tips to Improve Credit Score

If your score is low, it may be advisable to delay purchasing a new vehicle until you can raise your credit score. Although raising your score can be done, it can take a significant amount of time, depending on the reason for your low score. Some tips for raising your score include:

Make all payments on time and for the correct amount. If you have been delinquent in the past, your most recent on-time payment history will help improve your score even with the late payments on your file.

Never ignore bills that are past due. Contact the creditor and work out a payment arrangement with them until you are able to pay again agreed. Most are willing to work with customers who find themselves in a sudden financial crisis.

Keep debt as low as possible, but do not eliminate it completely. In order to build a credit history, you must use credit.

Know your credit score. In many cases, the first time a consumer learns they have been the victim of identity theft is when they apply for a loan and learn their credit score is much lower than it should be. Check your credit report and your score at least once per year. The federal government requires that credit bureaus provide every consumer with a free credit report annually. Although they are not required to provide you with a score with the report, most charge very small fees to provide you with your credit score as well.

If you are considering the purchase of a new vehicle, it is important to be aware of your credit score before you visit the dealership. Knowing your score in advance could allow you to get a much lower interest rate and arrange a better deal for the new car.