When applying for an auto loan, it is essential to know your credit score. It is crucial for auto lenders to know where your credit stands and if you could be a high risk.
Your credit score is essential for lenders to determine what interest rates they should charge you, how much they should let you borrow, and more. Here are some of the main credit requirements for an auto loan.
Your FICO credit score
Many auto lenders will look at your FICO score to see how qualified you will be to get approved for an auto loan. Your FICO score will consist of the five following factors:
- Payment History (35%): A record of all your payments since an account was opened. This will indicate to auto lenders whether consumers could be a high risk due to late or missed payments.
- Credit Utilization (30%): The percentage of available credit you have that you have used in a single period. The more of your credit you utilize, the higher risk you appear to be to a lender.
- Length of Credit History (15%): The length of time a consumer’s accounts have been opened and utilized. A longer length of credit history can give lenders a better understanding of a consumer’s financial behavior.
- Credit Mix (10%): Having diverse credit accounts can show a lender effective financial management, therefore, improving your overall credit score and eligibility for an auto loan.
- New Credit (10%): Each time you apply for a new credit account, an inquiry will be added to your credit report. Too many inquiries can portray you are struggling financially and be a risk for lenders.
Your FICO score can range anywhere from 300 (bad credit) to 850 (perfect credit). Many auto lenders may have requirements for where a consumer’s score needs to be. If your score is less than perfect, there are various ways you can improve it.
Ways to boost your credit
If you are struggling to get an auto loan, boosting your credit score can better qualify you. It may take time to boost your score. Here are some ways in which you can improve your score over time:
- Monitor your spending: Keep an eye on your spending and do not spend more than you are capable of paying. Keeping your spending at a manageable amount will make it easier for you to monitor and can keep your utilization score where it needs to be.
- Don’t miss payments: Missing payments can have a negative impact on your credit score. Making payments on time can boost your credit score making you more likely to be eligible for an auto loan.
- Lower your credit utilization rate: Minimizing your credit usage or qualifying for a higher credit limit can lower your credit utilization rate making you appear more stable to an auto lender
Overall, your credit score highly impacts your eligibility to qualify for an auto loan. If you are looking to buy a new car but have less than perfect credit, CrediReady can help.
Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!