What Credit Score Do You Need to Buy a Car? A Comprehensive Guide

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While there is currently no universal minimum credit score for auto loans, most lenders will have their own guidelines, but in general, if you have a credit score of 660 or higher, you should be able to buy a car on favorable terms. According to the Experian credit reporting agency, the average credit score in the first quarter of 2024 was 755 for new car loans and 686 for used car loans.

Your credit score is one of the most important factors that auto lenders consider when you apply for a car loan. Not only does your score influence the lender's decision, but it also drives the interest rate you'll receive on the money borrowed. A higher credit score can land you a lower interest rate, which means lower monthly payments and less money paid over the loan's lifetime.

Understanding how your credit score affects your ability to secure a car loan can help you make informed decisions and potentially save you money over the lifetime of the loan. Here we'll discuss what the credit score consists of, how it's calculated, and what minimum credit score you typically need to get approved for an auto loan.

What is a credit score? 

A credit score is a numerical indication of how creditworthy you are. The numeral score ranges from 300 to 850, with higher scores indicating better creditworthiness. This score is readily available to both you and the lenders you apply to for credit, including banks, credit unions, and auto loan companies, which will use it to assess the risk of lending you money.

It's a good idea to check your credit score and credit report before taking out a car loan. A check provides a good idea of your current credit status and a better chance of picking the right credit opportunity and avoiding a denial. Checking your score can also alert you to any anomalies, such as incorrect personal details or other information that could impact a lender's decision.

How is a credit score calculated?

Credit scores are calculated using various credit scoring models, such as the FICO model. These models evaluate several factors from your credit report to determine your score. If your credit score needs some work, you can take some time to rebuild or improve it before applying for an auto loan. FICO's calculation of a credit score involves several factors, including:

• Payment history (35%): Your history of making on-time payments on loans and credit cards

• Credit utilization (30%): The ratio of your current credit card balances to your credit limits

• Length of credit history (15%): The age of your credit accounts

• Credit mix (10%): The variety of credit types you have, such as credit cards, auto loans and mortgages

• New credit (10%): Recent applications for new credit and newly opened accounts

Determining the minimum credit score needed to buy a car

The minimum credit score required for an auto loan varies among lenders and dealerships. While some lenders may approve loans for borrowers with scores as low as 500, these loans often come with higher interest rates and less favorable terms. It's important to shop around and compare offers from different auto lenders, including banks, credit unions and online lenders.

Having a lower credit score doesn't mean you're out of options when it comes to securing an auto loan or other financial products. It simply means you may need to put in a bit more effort to find the right lender and the best terms available. For example, you may want to start with your bank or credit union, or consider specialized lenders that have products specifically for people with low credit scores. Another route is to explore dealerships that offer in-house financing. 

How a credit score affects your car loan

Here are two real-world examples of how auto loans and credit scores can differ based on your numbers: 

Scenario 1: High credit score (781 and above)

• Terms: Lower interest rate, favorable loan terms

• Example: Jane has a credit score of 780 and wants a new $40,000 vehicle. She applies for a common 72-month auto loan and because of her excellent credit score, she is approved for a loan with a 5.6% interest rate, which is a low rate by today's standards. We'll keep the numbers simple for this example, so we won't factor in down payment, tax or title. Jane's monthly payments would be about $655 and the total interest she'd pay over the life of the loan would be $7,188. She can also choose from a wider range of lenders and loan options because of her strong credit score.

Scenario 2: Low credit score (600 and below)

• Terms: Higher interest rate, less favorable loan terms

• Example: John has a credit score of 580 and needs a new SUV. He applies for a $40,000 loan, with a similar 72-month term. Due to his poor credit score, he's approved for a loan with an interest rate of 12.2%. This higher rate significantly increases his monthly payments to $786 and more than doubles total interest paid on the loan ($16,604) compared to Jane. Additionally, John has fewer lenders willing to offer him a loan, limiting his options.

The impact of credit history on auto loans

Your credit history significantly impacts your ability to secure an auto loan. Lenders review your past financial behavior, including your payment history and any outstanding debts, to determine your reliability as a borrower. 

A positive credit history with on-time payments and low credit card balances indicates to lenders that you're a responsible borrower and less likely to default on the loan. It can improve your chances of a loan approval that offers better terms.

A poor credit history, caused by missed payments or high credit card balances, can result in higher interest rates or loan denial. Just one or two missed payments can influence a lender's decision, so try to be on top of monthly payments.

What if you don't yet have a credit history? The best way to start building credit so you can take out an auto loan is to open a credit card account and start using it, making sure to pay all bills on time. You can also take out a student loan or become an authorized user on a family credit card. The goal is to show you're a good credit risk by managing your credit well. The more you can do to build your credit score, the sooner you can apply for an auto loan.

Major credit bureaus and credit reports

The major credit bureaus — Experian, Equifax and TransUnion — are responsible for creating credit scores and reports and holding this data securely. These reports can be accessed by you or a lender when you apply for a credit product. Most of the major credit bureaus also have mobile apps, allowing you to access your credit score and report wherever you are.

Edmunds says 

Regularly checking your credit reports for errors and staying informed about your credit status is essential for maintaining a good credit score. If you're considering buying a new or used car on credit, check your credit score before approaching a lender or car dealership. While there's no one-size-fits-all credit score required to buy a car, understanding your score can help you secure the most favorable terms for your auto loan.