It’s one of the most nerve-wracking parts about the car buying process for many shoppers. Applying for credit. It’s best to do your homework by obtaining your credit score before going to the dealership and filling out the important credit application. The last thing you want is to be surprised with a low score that derails your car-buying plans.
Car Pro Show host Jerry Reynolds explains the
dos and don’ts of filling out the credit application here.
Knowing your credit score beforehand is essential because:
- It can help you set your budget expectations, since credit scores impact your interest rate and, thus, your monthly payments.
- It allows you to give a dealer the heads up about a lower than desired score, which will allow them to look for ways to help you attain financing.
Credit Score Basics
The most widely used credit scores by credit reporting agencies like Experian, Equifax and TransUnion are based on FICO
® Scoring, a product of
Fair Isaac Corporation. Base scores run between 300 and 850. Experian Automotive’s 2018 Q4 analysis breaks down credit scores into five categories, with Super Prime being the best credit tier and Deep subprime the lowest.
| Category | Score Range |
|---|
| Super Prime | 781-850 |
| Prime | 661-780 |
| Non Prime | 601-660 |
| Subprime | 501-600 |
| Deep Subprime | 300-500 |
Credit Scores and Interest Rates
Can you get an auto loan with less than desirable credit? In many, but not all cases, yes. But there’s a price to pay - and that’s most likely a higher interest rate. Here are the latest available Experian stats in for new and used car interest rate financing. Used takes into account both franchised and independent dealers.
4th Quarter 2018 Finance Rates - Experian
| Credit Score Range | Interest Rate - New | Interest Rate - Used |
|---|
| 781-850 | 4.19% | 4.69% |
| 661-780 | 5.01% | 6.38% |
| 601-660 | 7.91% | 10.91% |
| 501-600 | 12.17% | 16.78% |
| 300-500 | 14.88% | 19.62% |
You’ll quickly note two things:
- People with better credit get far better, on average, interest rates.
- You’ll be able to get a better interest rate on a new versus a used vehicle. This is because lenders think of used vehicles as more of a risk, since they are older and could need more work done.
TIP: Always shop around for the best interest rate and know what you can get going in. Then compare it to the automaker’s own Captive Finance arms (for example, Honda, Toyota, or Volkswagen.) Car Pro Show host Jerry Reynolds says you can often can get lower interest rates through Captive sources than you could elsewhere.
Automotive-Lending Specific Scores
There are other credit scores to be aware of as well. Industry-specific FICO scores used for auto financing evaluations (and there are several versions.) These are all based on the base score, but give more weight to your past automotive lending history: did you make your payments on time, was your car repossessed, or did you declare bankruptcy on a previous auto loan. According to Experian, auto lending scores
range from 250 to 900. Some lenders use more than one score to make their decision. For example, if you go through a dealership’s Captive Finance arm, the finance office could submit your application to multiple lenders who use different scoring methodology.
While you can obtain free base credit reports from many various sources, you’ll have to pay for your
FICO® Auto Score.
Improving Credit
Regardless of the which credit version used, the keys to obtaining favorable scores are the same:
- Make payments on time
- Keep credit card balances low
- Open new credit accounts only when needed
- Consolidate credit card debt
Co-Signer
If your financial situation proves to be a roadblock you can’t get by without help, often getting a co-signer, like a family member, can help. Understand, however, exactly what you are asking of them when you seek financial help. Make sure they know as well. Car Pro Show host Jerry Reynolds talks about
co-signing auto loans here.
