What Credit Score Is Needed to Buy a Car?

Austin KilhamUpdated May 26, 2021

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Your credit score is one of the most important factors that auto lenders consider when deciding whether to offer you a loan. It also has a big impact on the terms and interest rate you may be offered. While you’re likely to receive a loan no matter what your credit is, a poor credit score means less favorable terms and higher interest rates. That can translate into a more expensive car in the long run. A good credit score makes it more likely that you'll receive an affordable loan with manageable terms. Understanding your credit score, how it can impact the loan you’re offered, and how to improve your score can help you secure an auto loan you can afford.

What Is a Credit Score?

When you’re in the market for a car or you need to take out a small business loan or personal loan or you’re trying to buy a house, your credit score is one of the most important criteria lenders use to decide whether to offer you a loan. It is represented by a three-digit number, usually between 300 and 850, and it indicates to lenders how likely you are to pay off your debts. A number of factors affect your credit score, including your payment history, how much debt you carry, and the length of your credit history. This credit information is gathered by three credit reporting bureaus: TransUnion, Equifax, and Experian. Credit scores may vary depending on which scoring model each bureau uses. What’s more, different lenders will likely have different criteria for the scores they require to grant loans or give good terms on them. They may even gather other information, such as your income, that isn’t included in your credit report to help them make a decision. Generally speaking, credit scores may be evaluated as follows:

300–579: Poor
580–669: Fair
670–739: Good
740–799: Very Good
800–850: Excellent

As this list suggests, a high credit score signals to lenders that you’ve been responsible with your credit in the past, paying a range of bills on time. It may make lenders more confident as they consider whether to loan you money, which can translate into favorable credit terms, including lower interest rates. The average credit score in the U.S. as of 2020, is 711.

Why Is Your Credit Score So Important When You’re Buying a Car?

Simply put, when you’re buying a car, a good credit score is important because it’s likely to lead to lower interest rates. Having a high credit score can potentially save you thousands of dollars over the life of your loan. Say you have poor credit with a score between 300 and 500. And let’s also say that you want to buy a $25,000 car with $2,000 down and you’re offered a 60-month loan with a 14% interest rate. Your monthly payment would be $535, and over the life of the loan, you’d pay over $9,000 in interest. That means that $25,000 car is now a $34,000 car. Now, say you had a good credit score, in the 670-730 range, and you’re offered a 7% interest rate. Your monthly payment would be $455 and you’d pay about $4,300 in interest over the life of the loan. That’s less than half of what you’d pay if you had a poor credit score.

What Credit Score Do I Need to Buy a Car?

The lower your credit score, the higher the chances that your auto loan application will be rejected or that you’ll be charged a higher interest rate. Generally speaking, you’ll need a score of 700 or above to qualify for the lowest rates. Buyers with these rates are at the top of the credit score range. To get more specific, interest rates are likely to skyrocket as your credit score drops below 700. Buyers with scores in the 650 to 699 range may expect interest rates that are double those offered to top-tier credit scores. People with scores in the 450 to 649 range could see interest rates three times higher than the best interest rates on offer. And anything below that could be five times higher, with interest rates as high as 20%. Note that some predatory lenders may offer loans at even higher interest rates. In this case, consumers must carefully weigh their need to own a new car with the punishing cost of high interest over the life of the loan.

Can I Get an Auto Loan with Bad Credit?

You can almost certainly get an auto loan with bad credit. However, it will probably cost you more and might ultimately be detrimental to your finances. For example, if you take out a loan with an extremely high interest rate, you may find yourself falling behind on payments. That could further hurt your credit, making it even more difficult for you to secure affordable loans in the future. Consider getting pre-qualified by a trustworthy lender for an auto loan before you go to a dealer. That may help you protect yourself from being put on the spot and convinced to accept an unfavorable loan. After you get pre-qualified, you can shop around for a loan with monthly payments and interest rates you can afford, a short term, and a high loan-to-value ratio (meaning that you don’t owe more on the car than the vehicle is actually worth). You may also be able to secure a better loan with poor credit if you can increase the amount of your down payment.

How Can I Monitor My Credit Score?

Because your credit has such a big effect on the loans you’re likely to receive, it’s important to monitor your score regularly. Start by checking your credit reports with the three major credit reporting bureaus. You can request a free report from each of them once every 12 months. Check your credit reports regularly to make sure they’re correct, and alert the bureaus immediately if any changes need to be made. The credit reporting bureaus don’t generally offer free credit scores, but you have a couple of other options for getting yours. First, many banks and credit card companies now offer free credit scores as a service to their customers. You may be able to find it on your statement or on your online account. If that’s not the case, you can purchase your score from the credit bureaus or another provider, such as FICO®. You could also engage a credit monitoring service, which may offer free access to one or more of your credit reports or may charge a monthly fee. In either case, the service will probably alert you when there are unexpected changes to your credit score.

How Can I Improve My Credit Score?

If your credit score is less than ideal, don’t despair. There are steps you can take to improve it.

Make sure your credit reports are accurate and complete.
Next, make sure you are paying your bills on time and in full. Late payments can have big negative effects on your score. Consider setting up bill autopay to make sure you get your payments in on time.
Your credit utilization ratio—the amount of credit card debt you carry compared to the amount you have available—may also play a big role in calculating your credit score. Paying off your credit cards can boost this ratio and help improve your score.
You can also try self-reporting information such as utilities and telecommunications payments to shore up your credit score.

Will a Car Loan Raise My Credit Score?

Getting a car loan will likely have a couple of effects on your credit score. First, an auto loan will trigger a hard inquiry to your credit report. That signals that you are actively looking for credit and might temporarily lower your credit score. However, an auto loan will also add to your credit history and should boost your score, as long as you make on-time payments. And, perhaps counterintuitively, paying off your auto loan early can lower your credit score because it means you’re closing a positive credit account.

The Takeaway

Though auto loans may be available to you no matter what your credit history, the more you can do to raise your credit score, the more likely you are to receive a favorable loan. If you’ve got a healthy credit score and you’re ready to shop for an auto loan, visit Lantern Credit by SoFi where you can fill out just one form to get a variety of offers from our lending partners and choose the one that’s best for you.

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About the Author

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.

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