Understanding your credit score is a crucial step when you’re planning to buy a car and considering financing. A common question for car buyers is, “What Credit Score Do Car Dealers Use?” The answer isn’t always straightforward, as dealerships can work with a range of credit scores and lenders. However, knowing what credit score car dealers typically look for can significantly empower you in the car buying process. It helps you understand your financing options, negotiate better terms, and potentially save money on your auto loan.
Why Your Credit Score Matters When Buying a Car
Your credit score is a three-digit number that represents your creditworthiness. It’s a key factor that car dealers and lenders consider when you apply for an auto loan. A higher credit score signals to lenders that you are a lower-risk borrower, meaning you are more likely to repay your loan on time. This translates to several advantages for you:
- Loan Approval: A good credit score significantly increases your chances of getting approved for a car loan. While it’s possible to get a car loan with a lower credit score, it may come with stricter terms or higher interest rates.
- Interest Rates: Your credit score is a primary determinant of the interest rate you’ll receive on your car loan. Borrowers with excellent credit scores qualify for the lowest interest rates, saving them thousands of dollars over the life of the loan. Conversely, lower credit scores usually result in higher interest rates, making the loan more expensive in the long run.
- Loan Terms: A strong credit score can also give you more flexibility in loan terms, such as the loan duration and the amount you can borrow. Lenders are more willing to offer favorable terms to borrowers they deem less risky.
Credit Score Ranges and Car Loans: What to Expect
Credit scores are generally categorized into ranges, each reflecting a different level of credit risk. Here’s a general overview of credit score ranges and how they typically impact car loan options:
- Excellent Credit (800+): Borrowers in this range are considered the least risky and have access to the best loan terms and lowest interest rates. They are likely to be approved for loans from almost any lender.
- Very Good Credit (740-799): Individuals with very good credit scores also enjoy excellent loan options and competitive interest rates. They are seen as highly creditworthy borrowers.
- Good Credit (670-739): This is considered an average credit score, and borrowers in this range can still qualify for car loans at reasonable interest rates. They have a good range of lender options.
- Fair Credit (580-669): Borrowers with fair credit scores may still be able to get car loans, but they will likely face higher interest rates. Lenders may also require larger down payments or offer less favorable loan terms.
- Poor Credit (Below 580): Getting a car loan with a poor credit score can be challenging. Options may be limited to lenders specializing in subprime auto loans, which typically come with very high interest rates and less favorable terms. It’s crucial to shop around and compare offers carefully in this range.
Car dealerships often work with a network of lenders that cater to different credit profiles. While there’s no single “magic number,” many dealerships consider a good credit score (670 and above) as a benchmark for the best financing options. However, it’s important to remember that dealerships work with a wide spectrum, and approval is possible even with lower scores, albeit usually with less desirable terms.
FICO® Score vs. VantageScore®: Which Do Car Dealers Use?
When discussing credit scores, you’ll often hear about two main scoring models: FICO® Score and VantageScore®. While both aim to assess credit risk, they use slightly different algorithms and data.
- FICO® Score: This is the most widely used credit scoring model, particularly in auto lending. It’s estimated that over 90% of top lenders use FICO Scores. Car dealerships overwhelmingly rely on FICO Scores when evaluating creditworthiness for auto loans.
- VantageScore®: This is a competing credit scoring model developed by the three major credit bureaus (Experian, Equifax, and TransUnion). While its adoption is growing, it is still less commonly used by car dealers compared to FICO Scores.
It’s important to be aware that when you inquire about “what credit score do car dealers use,” they are almost always referring to your FICO® Score. Furthermore, there are different versions of FICO Scores, such as FICO® Auto Scores, which are specifically tailored for auto lending and may weigh factors relevant to auto loan repayment more heavily. Knowing your FICO® Score is the most relevant information when you are preparing to finance a car.
How to Improve Your Credit Score Before Buying a Car
If you’re planning to buy a car in the future and are concerned about your credit score, there are steps you can take to improve it. Even a small increase in your credit score can make a difference in the loan terms you qualify for. Here are some key strategies:
- Pay Bills on Time: Payment history is the most significant factor influencing your credit score. Make sure to pay all your bills, including credit card bills, loan payments, and utility bills, on time, every time.
- Reduce Credit Card Debt: High credit card balances can negatively impact your credit score. Try to pay down your balances as much as possible, focusing on paying off accounts with the highest interest rates first.
- Don’t Close Old Credit Card Accounts: The length of your credit history is also a factor in your score. Keeping older, unused credit card accounts open (as long as they don’t have annual fees) can positively impact your credit history.
- Check Your Credit Report for Errors: Regularly review your credit reports from all three major credit bureaus (Experian, Equifax, and TransUnion) for any inaccuracies. Dispute any errors you find, as they could be negatively affecting your score.
- Avoid Applying for New Credit Unnecessarily: Each credit application can result in a small dip in your credit score. Avoid applying for multiple credit cards or loans in a short period, especially when you are preparing to buy a car.
Conclusion
Understanding what credit score car dealers use is vital for anyone planning to finance a car purchase. While dealerships work with a range of credit scores, having a good to excellent credit score will unlock the best financing options and potentially save you a significant amount of money. By knowing your credit score, understanding the different scoring models, and taking steps to improve your credit if needed, you can approach the car buying process with confidence and make informed financial decisions.
