If you’re looking to buy a new or used car, it’s important to understand your credit score and how it affects your chances of getting a loan. A large part of determining whether you can get a car loan and the interest rate depends on your credit score. Learn what credit score you need to get a car loan in 2024 and how it changes your other options for making money.
Different Credit Scores
There are two main credit rating models that lenders use: FICO Score and VantageScore. Both models check your credit, but since their algorithms aren’t exactly the same, the numbers they come up with can be slightly different.
Credit Score Ranges
Credit scores typically range from 300 to 850, with higher numbers indicating that you’re more likely to pay your bills on time. Credit score values break down like this:
Excellent: 750 or higher
Good: 700 to 749
Fair: 650 to 699
Poor: Fewer than 650 items that affect your credit score
Many factors can affect your credit score, such as
Payment history: Paying your loans and bills on time.
Credit utilization is the ratio between the amount of credit you use and the amount of credit you have available.
Length of credit history: How long you’ve had credit accounts.
New credit: Credit checks and new accounts opened in recent months.
Credit mix refers to the different types of credit accounts you have, such as loans, mortgages, and credit cards.
Score Most People Need to Get a Car Loan
By 2024, the average credit score required for a car loan will vary depending on whether you want to buy a new or used car. Lenders generally want people with higher credit scores because they offer better loan options.
Minimum credit score to get a car loan
Traditional lenders generally have stricter lending standards, while subprime lenders may have less stringent lending standards. But people with poorer credit scores tend to pay higher borrowing costs and have worse loan terms.
How to Improve Your Credit Score
If you want to get better auto loan offers, you may need to improve your credit score. Consider these plans:
Don’t forget to pay your bills on time, as being late can have a big impact on your credit score.
Pay your credit card bills: Paying off your credit card balances can improve your credit utilization ratio.
Check your credit report regularly: Spot any errors in your credit report right away and dispute them.
Don’t open a lot of new accounts: Opening a lot of accounts quickly can hurt your credit score.
Other options for people with bad credit
Even if your credit score is bad, there are still ways to get a car loan:
Co-signers: Having a co-signer with good credit can help if you want to get a loan.
Higher down payments: A higher down payment can be less risky for lenders.
Dealer financing programs: Some dealers offer financing options for people with bad credit.
How your credit score affects interest rates
When you get a car loan, the interest rate you pay depends on your credit score. People with better credit can usually get lower interest rates, which means a lower overall cost for the loan. To get the best deal, shop around and compare what different lenders have to offer.
Credit Scores and Getting a Loan
Your credit score is an important part of getting a loan, but your income and debt as a percentage of income are also important. Getting pre-approved can help you understand your financing options before you go to the dealership and negotiate terms.
Why Monitoring Your Credit Score Is Important
Checking your credit score regularly can help you see how it changes and spot any signs of identity theft or fraud. Many credit reporting services will notify you when there are significant changes to your credit report. This gives you peace of mind and helps protect you from identity theft.
Future Credit Score Trends
As technology improves, future credit scores may use different types of data and artificial intelligence to make them more accurate. The goal of these improvements is to get a more complete picture of an individual’s credit risk.
In conclusion
In 2024, your credit score will still be a very important part of getting a car loan. If you want a minimum Loan options vary depending on the lender and market conditions. Generally, people with lower credit scores may be charged higher interest rates, which means their monthly payments and total loan costs will be higher.
Will applying for multiple auto loans hurt my credit score?
Yes, checking your credit multiple times in a short period of time will hurt your credit score. In order to keep your credit score as low as possible, credit scoring models will usually count multiple inquiries for the same type of loan within a certain period as one problem.
Does the government have any programs to help people with bad credit get auto loans?
There are no government-specific auto loan programs, but there are some government-backed programs that try to make loans more accessible to people with low incomes or shorter credit histories. In addition, some nonprofits and community development financial institutions may be able to help underserved areas find other ways to get funding.
