What is the Average Credit Score to Buy a Car?
If you are planning to buy a car, you might be wondering what is the average credit score to buy a car. Your credit score is one of the most important factors that lenders consider when deciding whether to approve your loan application and what interest rate to charge you. In this article, we will explain what is the average credit score to buy a car, how it affects your loan terms, and how you can improve your credit score before applying for a car loan.
What is a Credit Score?
A credit score is a numerical representation of your credit history and behavior. It is based on the information in your credit reports, which are compiled by three major credit bureaus: Equifax, Experian, and TransUnion. Your credit reports contain information such as your payment history, credit utilization, length of credit history, types of credit, and new credit inquiries.
Your credit score ranges from 300 to 850, with higher scores indicating better creditworthiness. There are different models and versions of credit scores, but the most commonly used one is the FICO score. The FICO score has five main categories:
- Exceptional: 800-850
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
What is the Average Credit Score to Buy a Car?
According to Experian, the average credit score for new car loans in the fourth quarter of 2020 was 718, while the average credit score for used car loans was 657. However, these are only averages, and the actual credit score you need to buy a car may vary depending on the lender, the type of car, and other factors.
In general, lenders prefer borrowers with higher credit scores because they pose less risk of defaulting on their loans. Therefore, having a higher credit score can help you qualify for lower interest rates and better loan terms. For example, according to Bankrate.com, the average interest rate for a 60-month new car loan in April 2021 was 4.24% for borrowers with excellent credit (720 or higher), but it was 10.97% for borrowers with poor credit (579 or lower).
However, having a lower credit score does not necessarily mean that you cannot buy a car. There are lenders who specialize in subprime or bad credit car loans, which are designed for borrowers with low or no credit scores. These loans typically have higher interest rates and fees, shorter repayment periods, and lower loan amounts than prime or good credit car loans. They may also require a larger down payment or a cosigner to secure the loan.
How to Improve Your Credit Score Before Buying a Car?
If you want to improve your chances of getting approved for a car loan and getting better loan terms, you should try to improve your credit score before applying for a car loan. Here are some tips on how to do that:
- Check your credit reports and scores regularly. You can get one free copy of your credit report from each of the three major credit bureaus every 12 months at www.annualcreditreport.com. You can also get your free FICO score from some banks, credit card issuers, or online services. Review your credit reports for any errors or inaccuracies and dispute them with the credit bureaus if you find any.
- Pay your bills on time and in full. Your payment history is the most important factor in your credit score, so make sure you pay all your bills on time and in full every month. This includes not only your car loan payments but also your other debts such as credit cards, student loans, mortgages, etc.
- Reduce your debt and keep your credit utilization low. Your credit utilization is the ratio of your total outstanding balances to your total available credit limits. It reflects how much of your available credit you are using at any given time. A high credit utilization can hurt your credit score because