Buying a car can be an exciting and also worrisome time. Although you may have been working hard to increase your credit score to get the best rate possible, lenders are looking for a various mix of factors to see if you are able to repay your auto loan.
Over 90% of lenders will use your FICO score in determining if you are eligible for an auto loan. The FICO scoring model will range your credit score from 300 to 850 for perfect credit. Obviously, the higher your credit score, the higher your odds are of getting approved for your auto loan. It’s also important to note that lenders will use your FICO score to determine the interest they should charge you.
To understand what lenders are looking for in a credit score, let’s go over the five factors that make up your credit score:
- Payment History (35%) This shows a lender your ability to repay your auto loan. Items such as past due payments will show here in your report. Payment History is the largest single factor that can affect your score.
- Amounts Owed (30%) Also commonly referred to as credit utilization, it measures how much of your available credit you have used. Typically, you will want to keep your credit utilization to 30% or less.
- History (15%) This is a measurement of how long you have had accounts open and lines of credit available. It makes your credit habits more predictable to lenders if you have a longer credit history.
- New Credit (10%) This is essentially how many new lines of credit you have applied for. When people say that getting a quote for an auto loan will “ding” your score, this is the factor they are referring to.
- Credit Mix (10%) This is how many types of accounts you have open (such as a mortgage or auto loan).
There are 3 credit bureaus in the United States that track everybody’s credit score. These 3 bureaus are TransUnion, Equifax, and Experian. Your exact credit score will vary from bureau to bureau since not all credit-related information is reported to all 3 lenders. For instance, if you are behind on your utilities, your utility company may only report late payments to Experian.
However, most auto lenders will use only 1 bureaus score, but some may use two or even all three. Another note to know is that many auto lenders will use a credit model known as an “Auto Adjust Score”, which adds significant weight on your past auto loan payments compared to the score you receive directly from the 3 bureaus.
When it comes to auto loans, repayment history seems to be the largest influencer on approvals. If you have any negative marks on your credit report, contact your lender to see if they can have them removed. Having a higher score and less negative marks on your credit report can give you a lower interest rate as well.
The moments leading up to applying for that auto loan can be a bit nerve-wracking. Be vigilant and check all your 3 credit scores beforehand and also be sure to check your credit report. Again, you can get a copy of your credit score for free here.
Many large dealerships and even most used car dealerships won’t work with consumers who have bad credit. In this case, you will need to find a subprime lender who can help you get the loan you need.
If you are looking to finance your new car and have less than ideal credit, CrediReady offers one of the largest databases that connects dealerships, lenders, and buyers in all credit situations. Take a few moments to fill out our free and confidential loan search form online and we will match you with a dealership in your local area that can meet your auto financing needs.