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What Credit Score Do You Need to Buy a Car?

While automakers are reporting significant decreases in automobile purchases during April and May as most Americans were in-shelter due to the coronavirus pandemic, they are hoping for a pent-up demand for car buying activity as stay-at-home restrictions lift.

Is now a good time to buy a car?

If you happen to be considering purchasing a new or used car, it could be a great time to be in the market. Some anticipate many auto dealers are considering promotions for auto lending such as attractive cashback incentives, 0% financing, longer loan terms and other incentives to move inventory. But you'll have to qualify to get access to the most attractive terms, and having a higher FICO Score is often quoted as one of the key requirements.

It's in your best interest to be prepared and to know where your credit stands before you step foot on the lot to test drive that car of your dreams. In addition to researching the pricing of the models you are interested in and understanding your current vehicle's value (in the event you will be making a trade-in), you'll also want to review your credit scores.

What credit scores do car dealers use?

It's no secret that the overwhelming majority of auto lending decisions are based on FICO Scores. However, not as well understood is that most auto lenders pull FICO Auto Scores, an industry-specific version of the FICO Score tailored to be a better predictor of paying your auto loan on time. Similar to the broad-based FICO Scores, a history of paying as agreed, using available credit wisely, and only applying for credit when needed will typically result in a higher FICO Auto Score.

So, what credit score do you need to buy a car?

There's no official industry standard minimum credit score that you need to secure a car loan. Like other loans though, the higher your score the better your terms will be, and moving into a better "tier" of credit score could lead to substantial savings.

To understand how auto lenders may tier their loan interest rates based on FICO Scores, review this example: Assume you want to secure a $22,000 car loan with a 4-year term, and your current FICO Auto Score is 652.

FICO Score APR Monthly Payment Total Interest Paid
720+ 4.18% $499 $1,929 Target Score Range
690-719 5.53% $512 $2,573
660-689 7.91% $536 $3,737
620-659 10.71% $566 $5,147 Current Score Range
590-619 15.39% $617 $7,597
500-589 16.71% $632 $8,314

Source: Loans Saving Calculator based on rates from June 2020

Based on the interest rate table above, your monthly payment would be $566, and you would pay a total of $5,147 in interest over the life of the loan. If you increase your score to 720+, your monthly payment would be $67 lower, and you could save an extra $3,218 in interest fees over the 4-year term.

Knowing your FICO Auto Scores can help you understand what kinds of terms you may expect for an auto loan, and armed with this information, you can approach the financing interactions with more insights and confidence.

Tom Quinn

Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.