You’ve looked at cars, taken them for test drives, and found the ideal one. The lender pulls your credit report before approving to assess your creditworthiness, but will you be eligible for an auto loan? They use your credit report and credit score to determine if and at what interest rate to offer you a loan.
Lenders have a variety of credit scoring models and credit bureaus to choose from. So which credit score do car dealers commonly use?.
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You’ve looked at cars, taken them for test drives, and found the ideal one. The lender pulls your credit report before approving to assess your creditworthiness, but will you be eligible for an auto loan? They use your credit report and credit score to determine if and at what interest rate to offer you a loan.
Lenders have a variety of credit scoring models and credit bureaus to choose from. So which credit score do car dealers commonly use?.
What credit scores do car dealers use?
Lenders are likely to use one of the FICO® Auto Score, Base FICO® Score, or VantageScore® versions of your credit score when you apply for an auto loan. 90% of reputable lenders use FICO® scores, and nine out of the top ten banks use VantageScore® credit scores. [1][2].
FICO® Auto Scores are sector-specific scores that concentrate on your likelihood of making late payments on an auto loan. For instance, past auto loan late payments (or other adverse information) may lower your FICO® auto score more than other negative items.
FICO® Auto Scores use a scale of 250–900 rather than the conventional range of 300–850. Just as a higher score indicates less risk under other credit scoring models, a higher FICO® Auto Score also indicates lower credit risk. Based on each auto lender’s requirements, you’re more likely to be approved for car financing and receive a better interest rate if you have a higher score. Each individual lender decides what additional financial data they will take into account when conducting a credit review.
Lenders use multiple versions of the FICO® Auto Score. (Consider the various smartphone operating systems and how some users update their operating systems while others stick with more dated versions. ).
The most recent version is FICO® Auto Score 10, which was released in 2020 (as of this writing). FICO® Auto Score 2, FICO® Auto Score 4, FICO® Auto Score 5, and FICO® Auto Score 8 are still widely used by auto lenders.
The most popular FICO® auto scores for each credit bureau are listed below. [3].
FICO score (base model)
The likelihood that you will be late paying any debt within the next 24 months is predicted by your base FICO® scores. They feature the traditional score range of 300-850.
Lenders use numerous versions of base FICO® Scores. The most recent (as of this writing) FICO® Score is 10. However, FICO® Score 8, which was released in 2009, is still the most popular version. [3].
VantageScore®, a new credit scoring option, was introduced in 2006. The three major credit bureaus worked together to create the VantageScore® credit score.
The VantageScore® credit score’s two most recent iterations (3 0 and 4. 0) feature the industry-standard credit score range of 300-850. Older VantageScore® models had a scale of 501-990. [4].
VantageScore® are becoming increasingly popular among auto lenders. According to the 2019 VantageScore® Market Study Report, between July 1, 2018, and June 30, 2019, auto lenders used nearly 131 million VantageScore® credit scores. [5].
Depending on the credit scoring model and credit bureau, your credit score will change. You can obtain your credit scores from a number of businesses, frequently for a fee. For instance, Experian offers free VantageScore® 3 and FICO® Score 8 reports. 0 for $7. 95. For $14, Equifax will make your FICO® Score 5 available based on its report. 95 a month, and TransUnion will share your VantageScore® 3. 0 based on its report for $24. 95 a month. [6] VantageScore additionally offers free credit score reports from a few providers. [7].
In its “advanced” plan, available for $29, FICO® offers 28 FICO® Scores, including versions for credit, mortgages, and automobiles, as well as a three-bureau credit report and other services. 95 a month. If you think you need the service, be sure to look at the pricing page to find the best choice for you. [8] FICO® also provides other plans. Additionally, you can visit annualcreditreport.com to get a free copy of your credit report. com every 12 months from each credit reporting company. [9].
It’s crucial to comprehend your credit score’s range and how it affects your interest rate, even if you are unaware of the model your lender is using.
Which credit bureau is used for auto loans?
There are three major credit bureaus that compile your credit history into credit reports: Equifax, Experian and TransUnion. Lenders can use any credit bureau to determine your loan eligibility.
Which credit bureau is used the most for auto loans is a question that has no clear answer, and it may depend on a variety of factors, including how each lender reports to each credit bureau. There’s no guarantee that your credit information will be the same across all three credit bureaus, even though most lenders do so. Lenders are also not required to report to all three credit bureaus. [10].
How does a low credit score affect your car loan?
Your credit score will be taken into consideration by lenders when deciding whether to approve your application for a car loan, but it’s not the only one. Your debt-to-income ratio, private details like how long you’ve lived at your current address or worked for your current employer, and the size of the down payment you’re willing to make are also taken into account. [11].
With bad credit, you might still be able to purchase a new vehicle, but if you are, the aforementioned factors will probably have an impact on your loan terms, the amount of your monthly payment, and your interest rate. Always keep your budget in mind and consider your used car options. Despite the allure of a luxury vehicle, your budget and credit rating might be better served by a reliable used car. [12].
The Consumer Financial Protection Bureau (CFPB) states that, among a number of other variables, your credit score can affect your interest rate. Depending on your credit history, the loan amount, the kind of car you’re buying, and the length of the loan, your interest rate may change. [13].
Before requesting a car loan, you might want to try to raise your credit score if it’s in the “fair” or “very poor” range. Fair credit borrowers might be classified as subprime borrowers and won’t probably get the best terms if their loan is approved. Even if they are approved, people with very bad credit may still be subject to high interest rates and additional fees.
The average interest rate for a new or used car loan is shown in this graph according to credit score. According to the most recent data from Experian for Q4 of 2021, it divides borrowers into five risk categories based on their credit scores: deep subprime, subprime, nonprime, prime, or super prime. [14].
Disclaimer: Lenders may use various categories and scoring models, and all rates are subject to change. Please use this strictly as a guide.
| Credit score range | Credit score category | Average interest rate (new auto loan, Q4 2021) | Average interest rate (used auto loan, Q4 2021) |
|---|---|---|---|
| 720-850 | super prime | 2.47% | 3.61% |
| 660-719 | prime | 3.51% | 5.38% |
| 620-659 | nonprime | 6.07% | 9.80% |
| 580-619 | subprime | 9.41% | 15.96% |
| 579 or lower | deep subprime | 12.53% | 19.87% |
If a borrower has a low credit score, the lender might view them as a higher risk and require a larger down payment. However, since you’ll have a smaller loan to repay, this could work in your favor. Even at a higher interest rate, you might be able to save some money if you can afford a sizable down payment.
Ways to improve your credit before buying a car
Understanding the components that go into determining your credit score is useful before you decide to purchase a vehicle. Afterward, you can modify your financial behavior to improve your credit.
Pay your bills on time
Your payment history, which accounts for 35% of your FICO® Score, is the most significant factor in determining your credit score. Making loan payments on time is crucial for improving your credit score, whether it be for personal loans, student loans, or payments to credit card companies.
Pay down credit card balances
Your credit utilization ratio, which accounts for 30% of your FICO® Score, is the second-largest factor. This is the total balance owed on all of your credit cards divided by the total credit limit.
Your credit utilization would be 40% if you had $2,000 in debt on three credit cards with a combined limit of $5,000; experts advise keeping it under 30%. Higher credit utilization may lower your credit score and make lenders think you might be a risky borrower. [15].
Dispute any errors on your credit report
Credit report mistakes happen more frequently than you might imagine. Accounts may be reported incorrectly as open, late, or delinquent; numbers may be transposed; balances may be incorrect; and fraud may happen. According to a FTC study, one in four consumers discovered mistakes on their credit reports that could lower their score. [16].
Fortunately, you can dispute any errors that are inaccurate. You can order a free copy of your credit report from annualcreditreport.com to check for any suspicious entries. com.
Hold off on any new loans
Your credit score may be impacted if you apply for new credit or loans. One of the three major credit bureaus runs a credit check on you when you apply for new credit. This inquiry could result in a few points being deducted from your score, depending on the bureau the lender uses as well as the other elements in your report. However, if you apply for multiple car loans in a short period of time (typically 45 days), it will only count as one hard inquiry, according to FICO®. This idea also applies to looking for a mortgage loan. [17].
Build your credit over time
Building your credit in advance is a smart move if you anticipate being in the market for a car. It may be more beneficial to concentrate on general credit habits rather than trying to reach a certain score. Being patient and diligent about upholding sensible spending habits, paying bills on time, and keeping your credit utilization low will help you build credit over time.
You can build credit and get better terms on financial products like auto loans and other loans if you establish a good payment history and pay your monthly car payments on time.
Fair Isaac Corporation’s FICO® is a registered trademark in the United States and other countries. VantageScore and its logo are trademarks of VantageScore. Except where specifically stated otherwise or where their ownership of third parties is explicitly implied, all other trademarks are the property of VantageScore.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.
Providing readers with up-to-date, unbiased information on credit, financial health, and related topics is our aim at Self. This article’s foundation is research and other relevant pieces from reliable sources. Self only publishes content that has been written by accredited authors with experience in the finance sector.
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FAQ
What FICO score do car dealers use?
To determine whether you qualify for a loan, the majority of car dealerships use the FICO Score 8 scale. Because it is regarded as the most accurate evaluation of your credit standing, the FICO score is the most popular. A FICO score is produced using the scores from all three major credit bureaus.
What FICO score is good for a car loan?
Your interest rate for any loan will be better the higher your credit score. Generally, if you have a credit score of at least 660, you can obtain an auto loan without any trouble. You can typically qualify for auto manufacturer special financing with a credit score of 760 or higher, which can provide low-APR loans and rebates.
Do banks use FICO auto score 8?
The most popular FICO credit score among lenders in the financial sector is 8 (FICO).
What is a FICO auto score 8?
A credit-scoring system called FICO Score 8 was created by Fair, Isaac. It is the model that lenders use the most frequently to assess the creditworthiness of potential borrowers and determine the interest rate that should be applied to them.