What Credit Score Do You Need to Buy a Car? FICO Knows.

You should know what you’re getting into before you get into a vehicle for a test drive. Two things you should know: 1. Your credit score. 2. How your credit score stacks up against others, and how much interest you should expect to pay on a vehicle loan. No company knows more about this than FICO, the people who provide lenders with the scoring system most used by lenders. Here’s what they have to say:

While automakers are reporting significant decreases in automobile purchases during April and May as most Americans were in-shelter due to the coronavirus pandemic, they are hoping for a pent-up demand for car buying activity as stay-at-home restrictions lift.

Is now a good time to buy a car?

If you happen to be considering purchasing a new or used car, it could be a great time to be in the market.

Some anticipate many auto dealers are considering promotions for auto lending such as attractive cashback incentives, 0% financing, longer loan terms and other incentives to move inventory.

But you’ll have to qualify to get access to the most attractive terms and having a higher FICO Score is often quoted as one of the key requirements.

It’s in your best interest to be prepared and to know where your credit stands before you step foot on the lot to test drive that car of your dreams.

In addition to researching the pricing of the models you are interested in and understanding your current vehicle’s value (in the event you will be making a trade-in), you’ll also want to review your credit scores.

What credit scores do car dealers use?

It’s no secret that the overwhelming majority of auto lending decisions are based on FICO Scores.

However, not as well understood is that most auto lenders pull FICO Auto Scores, an industry-specific version of the FICO Score tailored to be a better predictor of paying your auto loan on time.

Similar to the broad-based FICO Scores, a history of paying as agreed, using available credit wisely, and only applying for credit when needed will typically result in a higher FICO Auto Score.

So, what credit score do you need to buy a car?

There’s no official industry standard minimum credit score that you need to secure a car loan.  Like other loans though, the higher your score the better your terms will be, and moving into a better “tier” of credit score could lead to substantial savings.

To understand how auto lenders may tier their loan interest rates based on FICO Scores, review this example: Assume you want to secure a $22,000 car loan with a 4-year term, and your current FICO Auto Score is 652. 

FICO provides this handy reference (use as a “for instance” since interest rates change, and different lenders will charge different rates):

FICO Score        APR      Monthly Payment         Total Interest Paid

720+                4.18%  $499                            $1,929

690-719           5.53%  $2,573                         $2,573

660-689           7.91%  $536                            $3,737

620-659           10.71% $566                            $5,147

590-619           15.39% $617                            $7,597

500-589           16.71% $632                            $8,314

Based on the interest rate table above, your monthly payment would be $566, and you would pay a total of $5,147 in interest over the life of the loan. 

If you increase your score to 720+, your monthly payment would be $67 lower, and you could save an extra $3,218 in interest fees over the 4-year term.

Knowing your FICO Auto Scores can help you understand what kinds of terms you may expect for an auto loan, and armed with this information, you can approach the financing interactions with more insights and confidence.

A note on “free credit scores”

Many credit card issuers now offer free credit score access. So do a number of online companies like Credit Karma. You should know that none of these sources give you your FICO Score. Many people are frustrated when they actually go into a car dealer with their credit score in hand, only to find the dealer’s lenders are using a different score to determine their credit-worthiness.

Only FICO can give you your up-to-the-minute FICO Scores – but you’ll have to pay for the privilege. Their service is called MyFICO, and it will cost you monthly. We recommend you sign up for MyFico if you’re getting close to a big-ticket purchase because we have found there’s often a significant difference between what the “free credit score” is telling you and what the lender is seeing from FICO. You can always discontinue the service later. Find them at www.myfico.com.

Go see your credit union

Credit unions often have the best deals on new and used vehicle finance. This is because credit unions are not-for-profit, and members like you are part-owners of their credit union.

Your credit union can not only help you get the best deal on a vehicle loan, they can also help you improve your score so you can get an even better deal later. Go back and look at that FICO chart, and contemplate the difference you’ll pay monthly – and over time – when you have poor credit, OK credit and great credit. It’s often worth putting off buying that vehicle until you have a great credit score.

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