What credit score is needed to buy a car?

Buying a car is exciting! But cars aren’t cheap. Even buying a used car can be a major financial decision that could impact you for a long time. Of course, you want to get a car in good working order, but maybe just as important is that you set yourself up for a favorable transaction with the seller or dealer. 

This means a good price and affordable financing. To do that, you’re going to need to understand your credit score. More specifically, you’ll want to know what credit score is needed to buy a car and what your credit score means for your ability to finance that car. 

To help you get through the buying experience and into that new vehicle, we’ll run through the must-know info about financing your ride. 

What does it mean to finance a car or truck?

When you buy a car or truck off a car lot, that car dealer expects their money at the time of purchase. They have to replace that car, pay employee wages, and tend to all their other bills. Cars are expensive though. That’s where financing comes in.

Financing a car means you don’t pay for it all upfront out of your pocket, but the dealership still gets their money. Usually, a third party — like a bank, a credit union, or another finance company — gives the money to the dealership so you can drive your new car off the lot that day. Most car manufacturers offer financing through the dealership as well, but it’s still worth shopping around to be sure you get the best rate. 

The money given on your behalf to the dealership is your auto loan, and through a monthly car payment, you’ll pay them back with added interest and fees. This is how the finance company makes their money. 

If the finance company is going to give the dealership thousands of dollars so you can have a car, they want to know you’re responsible and will pay them back on time. Since they don’t know you personally, they look at how you’ve handled your other bills. And this is where your credit score comes in handy. 

Finance companies will look at your credit score and determine how likely they think you are to pay them back on time. 

What is a credit score?

A credit score is like a grade you're given for how well you’ve managed your credit and bills over time. Banks and potential lenders use it to quickly determine whether they want to take you on as a borrower. 

These scores are created by looking at all the data on your credit report, which keeps track of what credit accounts you have open, what your balances are, and how you’ve paid them over time, amongst other things. 

There are three major credit bureaus that compile your information into credit reports: Equifax, Experian, and TransUnion. 

The information on your credit report is then run through a credit scoring model to determine your credit score. The two most popular scoring models lenders will use are the FICO Score and the VantageScore. Your credit score can range from a low score of 300, which is considered a very high-risk borrower, to a perfect score of 850. 

It’s rare to have a perfect score, and it can take decades to achieve. But luckily, no lender will expect it of you. Lenders usually just look at where your score fits in a range rather than what your actual score is. 

While specific lenders might consider these score ranges differently, the Consumer Financial Protection Bureau groups credit score ranges as the following:

• Super-prime: 720-850

• Prime: 660-719

• Near-prime: 620-659

• Subprime: 580-619

• Deep Subprime: 300-579

Pro tip: Looking to explore credit scores further? Visit FICO’s credit education page to learn more. 

What determines your credit score?

There are several factors from your credit report that go into calculating your score. 

If you’ve never looked at your credit report, you can get a free copy once per year to make sure there’s no inaccuracies limiting your financing options. 

Let’s look at five factors that make the difference between a bad credit score and a good one — and how important each one is. 

Payment history (approximately 35%)

If you already pay other bills, there’s a chance your payment activity is being reported to the credit reporting agencies. Making consistent, on-time payments goes a long way in building a strong credit history. While lenders and credit card companies will report on your activity once per month, utility companies and landlords usually don’t report unless you miss a payment.

Another way to build payment history quickly is if someone adds you as an authorized user on one of their established card accounts. As soon as you’re added, the payments on that account will be added to your history.

Amounts owed (approximately 30%) 

Credit utilization has a big effect on your score. This is a calculation of how much credit has been extended to you vs. how much you are currently using. If you’re only utilizing a small amount of your available credit, it signals to lenders that you’re managing your credit wisely and it can help your score.

Length of credit history (approximately 15%)

Since your credit score has a lot to do with your history, having long-standing relationships with lenders looks better on your credit report. Increasing the average age of your accounts takes time, so while you’re waiting for that time to pass, you can focus on the more influential credit score factors: payment history and amounts owed. 

Credit mix (approximately 10%)

Having multiple types of credit accounts can show a lender that you’re responsible and know how to handle your obligations. Your credit mix could consist of credit cards, student loans, mortgages, and other types of loans. 

New credit (10%)

Creditors like to see stable habits and long-term relationships. Applying for, or opening many new accounts too close together is viewed as a risk factor and could impact your score. 

Pro tip: There may be other factors that the bureaus consider when calculating your score. Visit TransUnion to learn more about all potential factors.

What credit score is needed to buy a car?

There’s not necessarily a minimum credit score needed to buy a car. But if you have a very low score and don’t meet the lender’s other eligibility requirements, your loan application could be declined. With a good credit score, you might get more favorable loan offers from auto lenders. This could mean you receive better loan terms for your car purchase, such as a higher loan amount, a lower monthly payment, a lower interest rate, or a smaller minimum down payment. 

In general, any credit score of 620 or above is considered prime and should give you access to most of what the automotive finance market has to offer. According to Experian, the average credit score of customers who got a loan on a used vehicle at the end of 2022 was 678 and 738 for loans on a new one. 

If you have a nonprime or low credit score, you could struggle to find a lender willing to work with you. Those that will do business with you could demand significantly higher interest rates and fees. That could make the car you buy way more expensive, or it could mean that you get less car for the money you work for. High interest rates can really increase your monthly payment.

What are the average car loan interest rates by credit score?

When looking at the average interest rates for each credit score, you can see that you can save a lot of money in interest by having a great score.

According to Experian, here are the average APRs for new car loans based on credit ratings:

• Super-prime: 2.96%

• Prime: 4.03%

• Nonprime: 6.57%

• Subprime: 9.75%

• Deep Subprime: 12.84%

According to Experian, here are the average APRs for used car loans based on credit ratings:

• Super-prime: 3.68%

• Prime: 5.53%

• Nonprime: 10.33%

• Subprime: 16.85%

• Deep Subprime: 20.43%

How will your interest rate affect the cost of your car? Consider the difference between a $20,000 five-year loan at the super prime rate of 3.68% interest and the same $20,000 five-year loan at the deep subprime rate of 20.43% interest. 

The super-prime borrower getting the best rates would pay $365.45 per month, while getting the rate of a deep subprime borrower would send the monthly payment up to $534.67 per month.

To put it another way, the borrower with a super-prime credit score could buy a $30,000 car and have the same $534 monthly loan payment as the deep subprime borrower buying a $20,000 car. 

With a high credit score, you can save some of your side hustle earnings for a rainy day (or gas money).

How can I check my credit score for free?

Before you go car shopping, you can check your credit score. Many credit cards and banks now allow you to see your credit score for free as a perk for being a customer. If you don’t have access to these services, you can also check your FICO Score by going to MyFICO.com. While they sell some premium features, you don’t have to make any purchases to see your credit score.

A great credit score can open (car) doors

Understanding what credit score is needed to buy a car can help you get more car for your money. Although it can take time and good habits to build it up, knowing your credit score is an important part of financial literacy. 

Find out how Greenlight is helping kids, teens, and young adults develop financial literacy with games and lessons that develop smart money habits. With videos and quizzes in the Greenlight app, your family can unlock the skills needed to build and maintain excellent credit for whenever you need it. Try it now and get one month on us.