Credit Score Tiers For Auto Loans

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Knowing your credit score can help you start the car-buying process on a solid financial footing. Buying a car is a significant financial decision. According to a third-quarter 2022 report from credit bureau Experian published in December, average credit scores of those financing cars increased slightly from a year earlier. Experian Information Solutions . State of the Automotive Finance Market Q3 2022. Accessed Dec 7, 2022. View all sources The report also found:

While a low credit score may not prevent you from getting a car loan, it may cause your interest rate to increase, resulting in higher payments.

In general, a larger down payment, searching around for financing, and bringing in documentation demonstrating a solid payment history on other major purchases may help you repair damaged credit.

The FICO® Score ranges from 300 to 850 and is broken down into five tiers, or bands:
  • Exceptional: 800-850.
  • Very good: 740-799.
  • Good: 670-739.
  • Fair: 580-669.
  • Poor: 300-579.

Better credit means lower costs

Knowing what to anticipate on average can help you prepare a budget for your car because interest rates vary depending on your credit score. You should be able to obtain a new car loan with an annual percentage rate of about 4 if your target credit score is 661 or higher. 90% or better, or a used-car loan around 5. 47% or lower.

Credit score

Average APR, new car

Average APR, used car

Superprime: 781-850.



Prime: 661-780.



Nonprime: 601-660.



Subprime: 501-600.



Deep subprime: 300-500.



Source: Experian Information Solutions.

Rates on used cars could be as low as five percent for someone with a score in the low 700s. 47%, compared with 15. 86 percent or more for a buyer with a mid-500 score, according to Experian data. The difference that can be made is demonstrated by using a car loan calculator.

For instance, a buyer with a higher credit score would make a monthly payment of about $382 on a $20,000, five-year loan for a used car instead of $485 for a buyer with a lower credit score. Over the course of the loan, the buyer with better credit would pay about $2,904 in interest, while the buyer with worse credit would pay roughly $9,105. Additionally, in most states, having poor credit can result in higher auto insurance costs.

For new car loans, the differences aren’t quite as pronounced: borrowers with credit scores in the low 700s can anticipate an average rate of 4 90% compared with 10. 11% for borrowers with credit in the mid-500s.

What is a FICO auto score?

It’s wise to check your credit score to get a sense of what potential buyers will see when they look at your credit profile. But there’s a chance that your dealer will utilize a FICO automotive score rather than a standard FICO score or VantageScore.

Your FICO auto score, which ranges from 250 to 900, is a specialty score that gives past car loan payments more weight than the standard FICO score does. Additionally, it gives any previous bankruptcies you may have filed for an auto loan or a repossession more weight. You can purchase a complete set of FICO scores at myFICO to check your automotive score. com and then discontinue the service as opposed to paying the relatively high monthly fee

Other factors beyond credit score can help you buy

If you have a credit score under 700 and are worried about getting approved, get ready by concentrating on your financial situation’s advantages. Remember, car loans are frequently granted to people with serious credit issues. Here are some good financial habits to emphasize in the finance office if you have bad credit.

Bring a bigger down payment to the table

Lowering your monthly payments can help you make up for a low credit score. It might even help you get a lower interest rate. Despite having a lower credit score, some lenders may view you as less risky if you make a sizable down payment.

Bring documents showing financial stability

If prospective lenders can see that you have stability in other aspects of your financial life, they are less likely to view you as a risk even if your credit score is low. Bringing proof of your address and most recent pay stubs to show lenders how long you have lived there and worked for your employer may make you appear more trustworthy.

Consider bringing your own financing

While dealerships do offer financing, it’s also a good idea to check with your neighborhood bank or credit union. You can even compare car loan rates online. Once you’ve chosen your preferred lender after comparing quotes from the best candidates, you can apply for preapproval to expedite the process.

Do not forget that receiving financing causes a “hard pull” on your credit. When comparing loan rates, grouping applications together in close proximity is beneficial.

Keep an eye on your scores in case you receive a loan with a higher interest rate than you anticipated. After making on-time payments for six to twelve months, you might be able to refinance your auto loan at a lower interest rate.

Build your credit before car shopping

It may be time to put off buying a car and focus on improving your credit if you are still having trouble getting car loan rates that are favorable to you. That means:

  • Paying bills on time. A payment that goes 30 days past due can devastate your score, so pay at least the minimum on time.
  • Keeping credit card balances low compared to your credit limits. How much of your limits youre using is called your credit utilization, and it has a big effect on your score. You can try a number of tactics to lower your credit utilization in order to bump up your score.
  • Avoiding applications for other credit within six months of applying for a car loan.
  • Keeping credit card accounts open unless theres a compelling reason to close them. Closing cards reduces your overall credit limit, which can hurt your credit utilization.
  • Your car loan can help you build better credit

    Your car loan will help you establish credit after you’ve gotten it in two crucial ways: payment history and credit mix.

    Your history of on-time bill payments is known as your payment history. It influences your credit score more than any other single factor does. Traditional lenders provide the three major credit bureaus with payment information, which is used to calculate your credit scores. (Note: Buy-here, pay-here lenders frequently fail to notify credit bureaus of payments. If you don’t report your payments, these loans won’t help you build credit and typically have high interest rates. ).

    If you have both installment loans—which have equal payments over a predetermined period of time—and revolving credit—which has variable payments and no set end date, like credit cards—your credit mix is favorable. Adding a car loan could raise your credit score if you primarily or exclusively use credit cards.

    What’s next?

  • Sign up to get your free credit score and report from NerdWallet. Information is updated weekly, and the factors affecting your score are broken out to make them easier to understand.
  • Learn how you can manage your credit with NerdWallet.
  • Bev OShea, a former credit writer for NerdWallet, is the author. Her work has been published elsewhere, including the New York Times, Washington Post, and MarketWatch. Read more.

    Amanda Barroso covers consumer credit and debt at NerdWallet. She previously held a position at the Pew Research Center and graduated from The Ohio State University with a doctorate. Read more.


    What is Tier 1 credit for a car?

    The best credit rating, tier-one credit, is typically only available to borrowers with the best credit scores. Tier one borrowers get the best loan conditions, such as lower interest rates, the option for longer repayment terms, and fewer down payments.

    What is a Tier 2 credit score?

    Borrowers who qualify for Tier 2 credit can finance purchases but will not receive as lenient of terms as their Tier 1 counterparts, including higher interest rates. Typically, Tier 2 credit scores range from 640 to 690.

    What is a Tier 3 auto loan?

    Tier 3: A score between 670 and 689 is considered “very good.” You are considered to be in this tier if you “have a good credit history with no recent late payments. ”.

    What is a Tier 3 credit score?

    Tier One – Scores between 800 and 850 are considered to be exceptional. Tier Two – Very good credit, with scores between 740 and 799 Tier Three: Scores between 670 and 739 are considered to be good. Tier Four: Scores between 300 and 669 are considered fair or poor credit.