The best score to look at when purchasing a car is your FICO Auto Score. This score was designed especially for auto lenders to determine the creditworthiness of a person in his application for an auto loan. Your typical FICO credit score is between 300-850, while your FICO Auto Score is between 250-900.
Why the FICO Auto Score Matters Most
Even if you can apply for a car loan through your normal FICO credit score, most of your terms and your actual rate of interest will be governed by FICO Auto Score. Here are a few key reasons why lenders focus on this score: Here are a few key reasons why lenders focus on this score:
- Focused on decisions on auto lending. Although your normal FICO score is utilized, the FICO vehicle Score uses an algorithm designed specially to protect the borrower's risk of defaulting or becoming overdue on a vehicle loan. While the FICO vehicle Score takes more pertinent and specialized consideration for vehicle loans, standard credit scores provide a far more comprehensive view of credit performance.
- Greater Range of Score Its score range is wider than that of the standard FICO scores, which run from 300 to 850. It runs from 250 to 900. This higher degree of investigation allows one to more precisely evaluate the credit risk of vehicle loans at more numbers of companies. Good credit generally translates into credit scores of 740 and higher.
- More Attention on the More Serious Offers Unlike other FICO scores, the FICO Auto Score calculates things differently and gives greater weight to those credit report items that are 90 days or more past due. This helps ascertain if you could find it difficult to pay back a sizable debt, like a vehicle loan. By assigning the same weight, a typical FICO score evaluates all the late payments equally.
- The aforementioned results have been reached using the credit report data listed below. Your Auto Score, like other FICO scores, is based only on the information in your Equifax, TransUnion, and Experian credit records. Purchasing your FICO Auto Score for use in loan choices allows lenders to see your credit situation as shown in your records rather precisely.
What decides your FICO Auto Score As an educational score, your FICO Auto Score depends on the same types of information as standard FICO scores, including:
As an educational score, your FICO Auto Score depends on the same types of information as standard FICO scores, including:
- Information about past payments – how you paid credit accounts, on time, late or missed payments, accounts that were turned over to collections, etc. This is the most important category.
- Any due and amounts of balances, especially the installment loan balance. This shows whether or not you are stretched too thin.
- Credit history: length of credit history, and individual accounts opened.
- Types of credit and loans – installment credit such as mortgages and auto loans and revolving credit such as credit cards. Thus, achieving the right balance increases your score.
- New credit – when you apply for new credit accounts especially in the recent past as many applications can hurt your credit score.
- As mentioned, the key difference is that your FICO Auto Score is calculated keeping these categories and auto lending decisions in mind.
- The timeliness of payments and high-balance installment loans are even more significant.
- How High Should Your Score Be to Buy a Car? As a result, people have been led to believe that they must have what is referred to as excellent or perfect credit scores to secure the best auto loan rates from lenders. But that's not quite accurate. Here's a breakdown of recommended scores: Heres a breakdown of recommended scores:
- Good to Excellent Credit Score – If you score 660 or above, you should be able to get a lender's lowest advertised interest rates if the rest of your profile looks good, with low credit utilization, regular income, and good employment history. This is most ideal territory when auto loan shopping is concerned.
- Still Good When Scores are between 620 and 659 - While you may not obtain the best of the best rates, scores in this range are still acceptable for auto lending. A rate of about 4 percent to 7 percent per annum can be considered normal. Shop around between lenders.
- Financing Becomes an Issue at 620 or Below - Anything below 620 is where one starts to experience difficulties in qualifying for financing. You may have to find a cosigner to get approved or possibly take a higher interest rate loan. Interest rates ranging from 8 percent to 14 percent can be expected. Consider whether to use a cash bargain if it is affordable, or if you can wait and build credit instead.
Of course, simply having average credit is not the same as having bad financing terms as well. Consumers who will be likely to be offered expensive subprime rate loans that go beyond 15 percent APR are those with very poor credit scores and most lenders will offer you this FICO Auto Score. It is therefore important to note that an average score reflecting proper utilization of auto or personal loans in the past can still lead to good auto financing.
What Happens When Auto Lenders Obtain Your Credit Report and FICO Score Car lenders do not just look at your credit one time before finalizing the car loan. It is quite normal for them to conduct an initial hard pull during the early stage of your application, and then conduct another one right before approving the loan terms. Reasons for multiple pulls include: Reasons for multiple pulls include:
- Employment and income have not changed – Your income, debts or score could change between the time you applied for a loan and the time you signed the loan papers. Rechecking helps to have current information, especially your FICO Auto Score.
- To make sure that you did not open new credit – when new accounts emerge before the closed credit report, they will consider this as a sign that you need money from the loans and thus deny it.
- Newer FICO Auto Scores may have been released with information not previously known. Newer scores can influence the credit decisions made.
Just know that multiple credit inquiries from car shopping can reduce your score, but only if those inquiries are close together. FICO scoring models know that you are comparing rates, not rejected over and over for credit cards. However, it is advised to aim to finish the financing within one month.
The Bottom Line For the best auto loan, and the most competitive rates, nothing beats very good to excellent credit score in the mid to high 600s and above, and this is where your individualized FICO Auto Score will be most useful to lenders. However, one should not be alarmed even if he or she has a mediocre credit score. There is some shopping between lenders and competitive online financing companies to make a score of under 620 quite achievable for most consumers who need a quality used or new car.
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