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What Credit Score Is Needed to Buy a Car?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Credit score to buy a car
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If you want to buy a car, you can probably find someone willing to sell you one and give you a loan, regardless of your credit score. But you might be shocked when you see what it will cost you. Car buyers who need a loan and don’t have a good credit score often end up paying more — a lot more.

Even if you have an average or better credit score, exactly how good it is can dramatically affect how much you pay to finance your car.

Fortunately, by learning about credit scores and how they affect your car loan, you can take steps to make sure you always get your best deal. Read on to learn how.

Buying a car? What’s your credit score?

The better your score, the better the auto loan deal you can get. That’s because if you have a proven track record of borrowing money and paying it as promised, lenders aren’t taking a big chance giving you a loan. They might even compete for your business by offering you low interest rate loans.

If your payment history is sketchier, you’re a riskier bet in the eyes of prospective lenders. You may quit paying, and they’ll have to take steps to collect. Lenders expect compensation for extra risk in the form of higher interest rates.

This chart shows how much your credit score can affect the amount you pay to finance your car.

Average Car Loan Rates by Credit Score, Third Quarter, 2018

Credit Score RangeNew Car LoanUsed Car Loan
781 to 8503.68%4.34%
661 to 7804.56%5.97%
601 to 6607.52%10.34%
501 to 60011.89%16.14%
300 to 50014.41%18.98%
Source: Experian

Do auto lenders use the same credit score as other lenders?

Credit bureaus offer a wide variety of credit scores to help meet lenders’ needs. Because auto lenders place more importance on certain credit information, such as your history of making car payments, the credit score an auto lender sees may be slightly different from the score pulled by other lenders.

What else do auto lenders look at besides my credit score?

Auto lenders look at several factors in addition to your credit history and credit score. According to the Consumer Financial Protection Bureau (CFPB), they’ll also consider how much income you have, your existing debt load, the amount of the loan you are applying for, the loan term (how long it will take you to pay it back), your down payment as a percentage of the vehicle value, and the type and age of the vehicle you are purchasing.

The most important things car lenders consider when you apply for a loan, however, are your credit score and credit history. “You can even get a car loan when you are unemployed, provided you have a down payment and money in the bank,” said Nishank Khanna, chief marketing officer at Clarify Capital, a business lending firm in New York City.

How can I increase my odds of getting a low-interest car loan?

If you want to get the best deal on a loan, follow these steps before you go to the dealership:

  1. Check your credit report before you look for a car. According to Experian, you should check your credit report at least three to six months before you make a major purchase. This gives you time to correct any mistakes on your report, if needed.
  2. Try to improve your score, if needed. One quick way to pump up your credit score is to lower your utilization rate, preferably by paying down your consumer debt. Even if you’ve never missed a payment, your credit score suffers if you’re using too much of your available credit when lenders report to the credit bureaus. Alternatively, you can ask for a credit limit increase, and instantly improve your utilization rate. (Just don’t use that available credit, or you’ll be worse off than before.)
  3. Avoid making major purchases or applying for other new credit right before you want a car loan. Applying for credit creates “hard inquiries” on your credit report, which can temporarily ding your score. In addition, new debt can change your debt-to-available-credit ratio, or increase your debt load.
  4. Know what you can afford. “Always get a car that you can realistically afford in terms of the car payments, not necessarily what you would like to have,” Khanna said. Stick to your decision, no matter how persuasive the salesperson can be.
  5. Find a cosigner, if necessary. If you have just entered the workforce, for example, you may not have a significant credit history. “You may need to have someone cosign your loan to get a decent interest rate,” Khanna said. A cosigner can be a parent, sibling or even a friend. The cosigner will be liable for the debt if you don’t pay, so make sure you can comfortably make the payments, and that you won’t put the cosigner’s finances at risk if something goes wrong.
  6. Shop around. Sure, it’s easy to apply for a car loan at the dealership. But you probably don’t buy cars without shopping around. Why would you sign up for a car loan at the first place you go? You can even find a good deal and get preapproved for a car loan. As a car buyer, it is wise to make sure that you are getting the best deal that you can qualify for. Consider starting your search with LendingTree, our parent company.  On LendingTree, you can fill out an online form and receive up to five potential auto loan offers from lenders at once, instead of filling out five different lender applications.

LendingTree
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3.99%

Terms

24 To 84

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Fees

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LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Avoid dealerships that advertise “no credit check” or “buy here, pay here.” These dealerships specialize in sales to buyers with poor or no credit and make their own in-house loans. According to the CFPB, you may not only pay high interest rates to places that specialize in buyers with poor credit, but you may pay thousands of dollars more for your car than you would elsewhere. If these are the only dealerships where you can get a loan, consider walking away.

“If your credit score is less than 500, you may be better off getting a car you can afford to buy outright with cash,” Khanna said. You can always get a nicer car when your credit improves.

While you’re comparing car loans, remember to pay attention to the total cost of financing your car. Your interest rate is just one factor in determining your total interest expense. You can also reduce your interest cost by making a larger down payment, paying off your car sooner, and by purchasing a less expensive car.

You have plenty to think about when you’re shopping for a car. You shouldn’t have to worry about your loan at the same time you’re checking out features and searching car lots. Get a head start on financing, before you go shopping, and you’ll have one less thing to worry about while you test drive your next car.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sally Herigstad
Sally Herigstad |

Sally Herigstad is a writer at MagnifyMoney. You can email Sally here

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When It Can Make Sense to Open a Store Card

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“And would you like to open a [insert store] card today to receive an extra 10% off your purchase?”

We’ve all heard this upsell strategy. Store credit cards seem to be available at just about any place you exchange currency for goods — except for maybe 7-11. But before you sign up, it’s important to know how opening a store card can help, or hurt, your finances.

What Are Store Credit Cards?

There are two types of store credit cards: store-only (closed loop) and co-branded (open-loop). The closed loop version limits your ability to use the card except with the retailer and its affiliates. The open-loop version carries a card network logo, such as Visa or Mastercard, which can be used anywhere Visa or Mastercard cards are accepted.

Some retailers offer both closed and open-loop versions of their cards, while others only offer a closed-loop card. Typically, the closed-loop cards are easier to be approved for: they often come with lower credit limits, and can be great for consumers looking to build or rebuild their credit scores.

The open-loop cards can require a higher credit score for approval, and some retailers will allow you to upgrade from a closed-loop card to an open-loop card after you’ve demonstrated good payment behavior with the closed-loop card. Or, they may require card applicants to apply first for the closed-loop card and, upon review of their credit file, approve them for the open-loop version, depending on their creditworthiness.

Pros and Cons of Store Cards

In addition to an initial discount on your first purchase, store cards can entice shoppers to return with ongoing discounts, special pricing and rewards programs. If you’re a regular shopper at that particular retailer, those discounts can help you save money, provided you pay off the balance in full when the bill is due. On the flip side, you may find yourself overspending on the card, as the temptation to just pull out the card when you don’t have the cash could be hard to resist.

Here are some pros and cons of applying for a store credit card:

Pros

Initial and ongoing discounts. If you’re purchasing a large-ticket item, getting a 10% or 20% discount can be a smart decision. And if you regularly shop at a particular retailer, taking advantage of ongoing promotions and sales will also help you save money.

Store perks. In addition to regular discounts and promotions that may come with a store card, some also throw in more perks like free shipping, invitation-only events, coupons and rewards programs.

Building credit. If you’re new to credit, getting a low-limit store card can be a great way to get started, as these cards are typically easier to qualify for. The payment activity of the card will be reported to the credit bureaus. As long as you handle the card responsibly, your good payment history will be reflected on your credit reports.

Rebuilding credit. If you’ve made financial blunders that have negatively impacted your credit score, getting back on track with a store card is an option you can try before having to resort to a secured card, which will require a deposit of several hundred dollars.

Cons

High interest rates. The average APR for new store credit offers is 24.97%,  compared to 16.91% for credit cards in general. With such high APRs, you don’t want to roll over a balance month to month on these cards or you may fall into a debt spiral, finding it ever more difficult to dig your way out of debt as interest charges pile up. Plus, any interest you pay will effectively negate any discount you got for using the card in the first place.

Low credit limits. While a retailer may increase your credit limit over time with responsible use of a store card, your initial credit line on a new store may just be a couple hundred dollars. If the amount of your purchases regularly comes close to maxing out your credit limit, your credit score will be negatively affected, as credit utilization (your balance compared to your credit limit) accounts for 30% of your credit score.

Read 6 Simple Steps to Improve Your Credit Score

Increased temptation to spend. Knowing you’ve got access to retailer credit, even though you don’t have the cash to spend, can make it too easy to rack up purchases you otherwise you couldn’t afford. And if you don’t have the funds to pay off the balance at the end of the month, you’ll be socked with sky-high interest charges.

Limited rewards redemption. Store card rewards programs typically require cardholders to use their rewards, cash back or points at that particular retailer or its affiliates only.

Deferred financing traps. If you apply for a 0% deferred financing credit card offer where you are given a fixed period of time to pay off a purchase without incurring interest charges, know that you run the risk of being hit with back interest from the time of purchase if you don’t pay off the balance during the 0% promotion time frame.

Hard inquiry. Anytime you apply for a new credit card, the lender will review your credit file to evaluate your creditworthiness. This is called a hard inquiry and will knock a few points off your credit score. The good news is that the inquiry’s impact will only last a year.

Read Minimize Rejection: Check if You’re Pre-Qualified for a Credit Card

Tips for staying out of trouble with store cards

Have a payoff plan. If you apply for and use a store card specifically to take advantage of a discount or promotion, have a plan in place for paying off the balance before interest charges accrue.

Resist overspending. Leave your store card at home unless you have a specific purchase in mind — that way you won’t succumb to impulse spending if you happen to walk in the store and have the card on hand to make unplanned purchases.

Make multiple monthly payments on high balances. To maintain low credit utilization on a low-limit card, it can be smart to make multiple payments online throughout the month. Better yet: once you make a purchase with the card, pay it off the next day online.

Cancel the card if it leads to too much temptation. While canceling a card can hurt your credit score, being buried in debt you can’t easily pay off is worse. If having a store card makes it too easy to spend beyond your means, you’re better off without it.

Bottom line

Store cards are great if you’re looking for a way to build or rebuild your credit score as they’re generally much easier to qualify for, but they can be dangerous if they tempt you to spend more than you can afford to repay. If you’re not careful, the high APRs and low credit limits that are often associated with store cards can quickly lead to trouble. But if you shop regularly at a retailer, being able to access discounts on a regular basis can help you save money, as long as you’re diligent about paying off the balance in full by the due date.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Julie sherrier
Julie sherrier |

Julie sherrier is a writer at MagnifyMoney. You can email Julie here

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View Your Free FICO Score for all 3 Credit Bureaus

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View Your Free FICO Score for all 3 Credit Bureaus

There are lots of free credit scores floating around, but most of them are not the true FICO® score that lenders subscribe to and use as part of their decision.

However FICO® is working to change that by allowing banks and credit unions to give you free ongoing access to the real score they use to make lending decisions as long as you are an account holder.

The easiest place for anyone to get their free FICO® score is via the Discover Credit Scorecard. You do not need to be a customer of Discover – anyone can register and get their official FICO® score for free. The data is from the Experian credit bureau.

You can also get a free Experian FICO® 8 score at freecreditscore.com. While that site used to require you to enter your credit card to get information, your FICO® score and Experian report are completely free with no credit card information needed.

To find out where to get your FICO® score from the other credit bureaus, read on.


Every bank chooses at least one of three credit bureaus to calculate a FICO® score: Equifax, Experian, and TransUnion. The FICO® score one bank uses can be different than another depending on which credit bureau they pulled a report from.

The good news is, you can now see your real, free FICO® score from all three credit bureaus depending on which banks hold your accounts. FICO® itself charges $19.95 a month for you to see those scores, though they also throw in full copies of your credit reports, which the free bank scores do not.

Here’s where to find your real, free FICO® scores from banks or credit unions anyone can join:

Equifax Scores

Citibank

  • Available with: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Score updated: Monthly
  • Where to find it: On your online account or the Citi app
  • Learn more

DCU Credit Union

  • Available with: Any credit card, or a checking account with direct deposit
  • Score updated: Monthly
  • Where to find it: Look for an invitation in your online account
  • Learn more

Huntington Bank

  • Available with: The Huntington Voice credit card – you will get a FICO® Bankcard Score 2 from Equifax
  • Where to find it: Log into your account and you’ll see a link

PenFed

  • Available with: PenFed members with active checking accounts, installment loans, and revolving lines of credit
  • Score updated: When PenFed refreshes – no set schedule
  • Where to find it: Login to your account and click ‘Your FICO® Score is Ready’
  • Notes: PenFed uses a more advanced ‘Next Gen’ FICO® score that has a different scale than traditional FICO® scores, with 150 as the lowest score and 950 as the highest score. Most banks use a score with a scale of 300 to 850. Because of this the score you see on PenFed’s site may be higher or lower than what you see from others.
  • Learn more

State Employees Credit Union of North Carolina

  • Available to all credit card holders

Experian Scores

Capital One and American Express regularly use Experian’s FICO® among others for credit decisions.

American Express

  • Available with: Any American Express credit card
  • Score updated: Monthly
  • Where to find it: On your online account

Chase

  • Available with: Chase Slate®* accounts
  • Score updated: Monthly
  • Learn more

Discover

  • Available with: All Discover cards and if you are not a Discover cardholder, you can sign up to get your FICO® score for free by visiting creditscorecard.com.
  • Score updated: Monthly
  • Where to find it: On your statement and online

First National Bank of Omaha

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

Wells Fargo

  • Available with: Any Wells Fargo credit card
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

Please note: a previous version of this blog post noted that USAA provides a free FICO® credit score. USAA actually provides a free VantageScore.

TransUnion Scores

Bank of America

  • Available with: Select credit card accounts
  • Score updated: Monthly, with history
  • Where to find it: Link available on your account summary page under the ‘Tools and Investing’ section

Barclays

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: Link available on your account summary page

Walmart / Sam’s Club

  • Available with: Walmart Credit Card, Walmart MasterCard, or Sam’s Club Credit Card
  • Score updated: Monthly
  • Where to find it: At Walmart.com/creditlogin, only if you enroll in online delivery of monthly statements
  • Learn more

Unknown Bureau

Other, less open to the public free FICO® providers include:

  • Ally, for auto loan holders
  • Hyundai and Kia Motor Finance allow customers to view their FICO scores through their online accounts.
  • Sallie Mae offers a free, quarterly TransUnion score if you receive a new Smart Option Student.
  • Merrick Bank doesn’t have open applications for its Platinum Visa, but does offer free scores to its cardholders.
  • Some credit unions with limited membership also offer scores, so check yours to see if it provides them.

Find the Best Credit Score for Your Needs:

The credit score that you are looking for varies, depending on what type of credit you are looking to apply for. Each credit score version has different benefits, and lenders pull certain scores in accordance with your application.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

If you’re simply looking to monitor your credit score and stay on top of your credit, either VantageScore or FICO® score will suffice.

New Credit Card

The best options: FICO® Bankcard Scores or FICO® Score 8 primarily; FICO® Score 3

Where to get them: Get your FICO® Score 8 from Credit Scorecard by Discover or freecreditscore.com

When applying for a new credit card, these scores are most likely to be pulled by credit card issuers. Lenders may pull your score from one or all three bureaus.

Mortgage Loans and Mortgage ReFis

The best options: FICO® Scores 2, 4, 5

Where to get them: Myfico.com for $19.95 a month

These scores are used in the majority of mortgage-related credit evaluations, with lenders pulling your score from all three bureaus. However, these scores are not free and can only be purchased at myfico.com.

Auto Loans

The best options: FICO® Auto Scores 2, 4, 5, 8, 9

Where to get them: Myfico.com for $19.95 a month

Auto scores are industry-specific and used in the majority of auto-financing credit evaluations. Lenders may pull your score from one or all three bureaus. Unfortunately, these scores are not free and need to be purchased at Myfico.com.

Personal Loans, Student Loans, and Retail Credit

The best option: FICO® Score 8

Where to get it: Credit Scorecard by Discover or freecreditscore.com.

For other financial products such as personal loans, student loans, and retail credit, FICO® Score 8 is best. This is the credit score most widely used by lenders, and they may pull your score from one or all three bureaus when making a decision.

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Credit Req.

Minimum 500 FICO®

Minimum Credit Score

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A Personal Loan can offer funds relatively quickly once you qualify you could have your funds within a few days to a week. A loan can be fixed for a term and rate or variable with fluctuating amount due and rate assessed, be sure to speak with your loan officer about the actual term and rate you may qualify for based on your credit history and ability to repay the loan. A personal loan can assist in paying off high-interest rate balances with one fixed term payment, so it is important that you try to obtain a fixed term and rate if your goal is to reduce your debt. Some lenders may require that you have an account with them already and for a prescribed period of time in order to qualify for better rates on their personal loan products. Lenders may charge an origination fee generally around 1% of the amount sought. Be sure to ask about all fees, costs and terms associated with each loan product. Loan amounts of $1,000 up to $50,000 are available through participating lenders; however, your state, credit history, credit score, personal financial situation, and lender underwriting criteria can impact the amount, fees, terms and rates offered. Ask your loan officer for details.

As of 28-Feb-2019, LendingTree Personal Loan consumers were seeing match rates as low as 3.99% (3.99% APR) on a $10,000 loan amount for a term of three (3) years. Rates and APRs were based on a self-identified credit score of 700 or higher, zero down payment, origination fees of $0 to $100 (depending on loan amount and term selected).

Other Scores and Their Value

FICO® Score 9 is the newest model and not widely used yet. It is also not available for free at this time. The benefits of this score are that it doesn’t penalize you for paid collections and reduces the ding you get from unpaid medical collections. See our review for more information.

The FICO® NextGen score is used to assess credit risk, but only a small number of lenders use it due to its 150-950 scoring range and older model.

*The information related to the Chase Slate® has been collected by CompareCards and has not been reviewed or provided by the issuer of this card prior to publication.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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