What Credit Score Do Car Dealerships Look At?
Learn how car dealerships evaluate your financial health for vehicle financing and what influences your loan options.
When purchasing a vehicle, dealerships assess a potential buyer’s financial health to determine loan eligibility and terms. This evaluation is a standard, as dealerships often facilitate financing through various lenders. Understanding how your financial standing is viewed by these lenders can help you navigate the process more effectively. Your financial history provides insights into your ability to manage debt, which directly influences the offers you receive. This assessment helps ensure that both the buyer and the lender enter into a manageable agreement.
What Credit Scores Dealerships Consider
Dealerships examine credit scores to gauge a borrower’s risk. The most commonly used scoring models are FICO Scores and VantageScore, though specific auto-lending versions apply. FICO Auto Scores (250-900) are designed for vehicle loans, emphasizing auto loan history more than general FICO Scores (300-850). A higher score indicates lower risk to lenders, making you a more attractive borrower.
Credit score ranges categorize borrowers into different risk profiles. A FICO Auto Score between 800 and 900 is considered exceptional, while 740 to 799 is very good, and 670 to 739 is good. Scores from 580 to 669 are fair, and anything below 579 is considered poor. For VantageScore models, a good score is above 661, while scores below 600 are considered poor. While these ranges provide a general understanding, specific lenders may have their own internal criteria for what constitutes “good” or “poor” credit.
The Role of Credit Reports
While credit scores provide a quick summary, dealerships and their associated lenders also examine the detailed information within credit reports. A credit report is a comprehensive record of your borrowing and repayment history. These reports are compiled by the three major nationwide credit bureaus: Experian, Equifax, and TransUnion. Dealerships obtain reports from one or more of these bureaus.
Credit reports include several key categories of information. These cover your payment history, amounts owed (credit utilization), and the length of your credit history. The report also details your credit mix, such as different types of loans and credit cards, and any new credit applications, which appear as inquiries.
How Your Credit Impacts Your Auto Loan
Your credit score and report directly influence the tangible outcomes of your auto loan application. A strong credit profile, typically a FICO Auto Score of 670 or higher, increases the likelihood of loan approval. It also leads to lower interest rates, which can significantly reduce your monthly payments and the total cost of the loan over its term. For example, an excellent credit score (750+) might qualify you for rates around 3% APR, while a fair score (650-699) could see rates climb to 7-9% APR.
Favorable credit can also result in more advantageous loan terms, such as smaller down payment requirements or access to longer repayment periods, which can lower monthly installments. A robust credit history may also broaden your vehicle choices, as lenders might be more willing to finance higher-priced or newer models. Conversely, a poor credit score can lead to higher interest rates and less favorable terms like larger down payments or shorter repayment periods. A very low score might even result in loan denial or the requirement for a co-signer to secure financing.
Preparing Your Credit for a Car Purchase
Before visiting a dealership, taking steps to improve your credit standing can be beneficial. A fundamental step involves checking your own credit reports for accuracy from all three major bureaus, which you can do annually for free at AnnualCreditReport.com. If you discover any inaccuracies, such as debts you do not owe or have already paid, you should dispute them with the credit bureau and the creditor, providing documentation like receipts or bank records.
Reducing your existing debt, particularly credit card balances, is an effective strategy, aiming to keep your credit utilization ratio at or below 30%. Consistently making on-time payments on all your current debts demonstrates responsible financial behavior and positively impacts your credit score. It is also advisable to avoid applying for new credit accounts shortly before seeking an auto loan, as new inquiries can temporarily lower your score. Obtaining a pre-approval from a bank or credit union before engaging with a dealership can provide a benchmark interest rate and strengthen your negotiation position.