What is a Good Credit Score to Buy a Car?

Car and coins

Do you need a specific credit score to buy a car? You really don’t because most car dealerships will do what they can to sell you a car. This doesn’t mean that you shouldn’t have a good credit score though, because it can benefit you in many other ways.

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The Ideal Credit Score

Ideally, you should have at least a 700 credit score. This credit score will net you the best terms and interest rate on your car loan. Car dealerships and even banks will ask very few questions and will approve you for the loan, assuming you have a current job and aren’t in over your head in debt.

You must remember that lenders look at the big picture. They want to know how likely you are to pay your car payments on time every month. They look at your credit history, job history, and debt load. You could have the best credit score in history, but if you aren’t currently employed, don’t have other income to help you keep up with your payments, or have so much debt that you have very little disposable income, you probably won’t qualify.

Don’t fixate yourself on just the credit score – look at the big picture.

Explain Yourself if you Have a Low Credit Score

If you do have a low credit score, you may still get financing. It won’t be at the most lucrative terms available to those with high credit scores, but you can still get a loan. What lenders/car dealers will want is an explanation.

Let’s say you fell late on a few payments in the last year. If the last six to eight months show that you’ve gotten current, explain yourself. Let the lender know why you paid your bills late. If you had a legitimate excuse, such as an illness or company closing, they may cut you some slack. Be prepared to provide documentation of the reason for them to believe you, though. They aren’t just going to take your word for it.

If you have a low credit score for any other reason, explain it. Lenders want to know why you are in the position that you are in now. They also want to know what you will do moving forward in order to give you the best chance at staying current on your car payments. The more proof you can provide of your financial stability, the more likely you are to get approved despite your low credit score.

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Watch Your Debts

We encourage you to check your credit score before you even think of buying a car. Most credit card companies and banks offer free access to your credit score. While it won’t exactly mimic what lenders see, it will give you a good idea of where you stand. If you know you have a low credit score, you’ll want to show as many positive factors as possible when you apply for a car loan. One such factor is very few debts. If you have a low credit score and a high debt ratio, you could find yourself without a car loan.

There’s no magic number regarding the perfect debt ratio for a car loan, but you can use the conventional mortgage loan rules as a guide. They prefer that your debt ratio doesn’t exceed 36%. This includes all of your monthly bills such as the mortgage/rent, car payment, student loans, installment loans, and minimum credit card payments. Use that number as a guide as you figure out where you stand.

If you have a much higher debt ratio, start paying those debts down before you apply for that car loan. The more positive factors you have, the lower the credit score you may obtain.

Have Stable Employment

There’s something to be said about stable employment. It shows lenders reliability and stability. Without a stable job, there’s no guarantee that you will be able to pay your car payment moving forward. You want to show lenders/car dealers that you have a job that will be there for the foreseeable future, especially if you don’t have the minimum 700 credit score. It’s a compensating factor that may land you the car loan that you need.

Don’t fret if you have a 650 credit score or an even lower score – lenders may still give you a car loan. Just be prepared to pay higher interest rates and more fees. Lenders base the interest rate and fees that they charge on your risk factors. A low credit score poses as a high risk of default. Show lenders other positive factors, though, and you have a chance at landing that car loan with lucrative terms.

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