What Credit Score Range is Required to Buy a Car?

Most of us have once dreamed of owning our own car, unshackling ourselves from the hand-me-downs of our parents or older siblings. So now that we’ve dreamed it, how do we now get behind the wheel? 

Whether you’re a first time buyer or repeat buyer, most likely you’re hoping for a car loan as opposed to paying cash. In fact, about 80% of car buyers use an auto loan to finance their purchase. 

If you’re in the 80 percent group that will apply for an auto loan, you can bet that your lender, whether you finance through a bank or through the car dealership, will be using your credit score to determine the interest rate they can offer you, or even your creditworthiness to receive a loan at all. 

If that sounds like a stressful situation, it certainly can be if you don’t take steps to maximize your credit score. 

What is a Credit Score and How Does It Work?

A credit score is used by banks and other vendors and creditors to predict your likelihood of paying them according to an agreed upon schedule and amount. The credit score itself is determined by information in your credit reports. Your credit reports come from the three primary bureaus - Experian, TransUnion and Equifax. The creditors can choose from any or all of these bureaus as they assess your creditworthiness or purchase terms. 

How is My Credit Score Calculated? 

Credit scores - often called FICO Scores - are calculated using many different pieces of credit data in your credit report. The data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

Below is how FICO breaks down credit scores.

• Below 580: poor.
• 580 to 669: fair.
• 670 to 739: good.
• 740 to 799: very good.
• 800 and above: exceptional.

What Can I Do to Improve My Fico Score?

The best way to increase your credit score is to be proactive. While it’s difficult to make changes to the past, what you do next is still very important in getting your score up and making it easier to get good credit terms. 

Check your credit report for errors

• Carefully review your credit report from all three credit reporting agencies for any incorrect information. 
• Dispute inaccurate or missing information by contacting the credit reporting agency and your lender. 
• Checking your own credit report or FICO Score has no impact on your credit score.

Pay bills on time

• Making payments on time to your lenders and creditors is one of the biggest contributing factors to your credit scores. 
• Pay your bills on time: delinquent payments, even if only a few days late, and collections can have a significantly negative impact on your FICO Scores. Remember that past problems are not easily fixed.
• Be aware that paying off a collection account will not remove it from your credit report: it will stay on your report for seven years.
• If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.

Reduce the amount of debt you owe

• The balance of your debt to available credit contributes 30% to a FICO Score's calculation. It can be easier to clean up than payment history, but it requires financial discipline and understanding the tips below.
• Keep balances low on credit cards and other revolving credit.
• Pay off debt rather than moving it around: the most effective way to improve your credit scores in this area is by paying down your revolving (credit card) debt. 
• Don't close unused credit cards as a short-term strategy to raise your scores.
• Don't open several new credit cards, you don't need to increase your available credit.

Why Credit Scores Matter When Buying a Car

It’s simple: a 2024 report by Experian found that more than 69% of cars financed go to borrowers with scores of 661 or higher, with an average credit score of 689 for a used-car loan and 753 for a new-car loan. 

If you happen to have a lower score than these, you do have options. Borrowers with scores under 600 still account for more than 15% of cars financed. Note that while a low score might still allow you to finance a car purchase, it might also raise your interest rate significantly, resulting in higher payments. 

The primary negative impacts on buying a car with a low credit score:

• Loan Approval Odds. Higher scores increase approval chances.
• Interest Rates Impact. Lower scores often mean higher interest rates.
• Loan Terms and Conditions. How credit scores affect loan flexibility

Is There a Minimum Credit Score Needed to Buy A Car?

First off, there’s really no universally accepted minimum credit score. It really depends on whether you’re buying a new or used car, what financial institution you use, and what formula they use to determine the creditworthiness of the car buyer. They may use other factors than a credit score, such as the applicant's debt-to-income ratio, or a credit union considering how long you’ve been a member. 

Generally speaking, a credit score of 500 is the minimum credit score requirement. You can probably still get financing with a credit score under 500, but most likely you’d pay a very high interest rate. 

Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. But again, you may be approved for a loan with a credit score of around 600, but your terms are not going to be as favorable. 

Tips for Buying a Car with Bad Credit

• Start by educating yourself on your credit score so you’re not caught off guard and take steps to increase your score if possible. 
• Save money for the down payment. This will improve your creditworthiness and potentially get you better terms. 
• Research all of the options for buyers that have similar credit scores to yours so that you can make the best possible decision. 
• Don’t settle for the first lender you talk to. Get pre-qualified with several lenders and shop around for different and better terms. 
• Don’t let lenders confuse you with lower monthly payments. These will typically lead to longer terms and more interest paid overall. What you want is the lowest interest rate. This will determine the best financial deal for you. 
• Consider having a co-signer. This is often a parent that doesn’t have a problem carrying liability for repayment. The co-signer would obviously have a better credit history and score in order to help you get a better deal. 
• Avoid add-ons. Dealerships and lenders often offer extended warranties, car insurance and after-market services that drive up the amount you’re financing and provide a very nice profit for dealerships and lenders. 
• Choose a More Affordable Car. While this may seem obvious, often buyers fall in love with a car that is beyond their ability to pay, particularly when they are dealing with unfavorable loan terms because of a low credit score.  

Empower Your Car Buying Journey, Even with Low Credit

Buying a car is very exciting. Buying a car when you have a low credit score is something a little less exciting. But that doesn’t make your task impossible:

1. Understand your FICO score and how you might be able to improve it quickly.
2. Do your research on what you can really afford and what your financing options are.
3. Bring in someone you trust to help you, including a reputable lender. 
4. Don’t let a car dealer or lender take advantage of you. If something doesn’t seem right to you, walk away from the deal.