Best Credit Score To Buy a Car

Almost everyone needs a car in their daily lives, whether to take them to work or to drive their kids to school.

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 In most cities, getting from point A to point B is essential. If you don’t have one, you might wonder whether it’s better to lease or buy one outright. 

Before making large purchases like a vehicle, it’s helpful to know your credit score so you can find out what kind of loan you can get approved for and what kind of interest rate you will be dealing with. 

In this article, we look at the credit scores you need to lease or purchase a vehicle to better plan to get your dream car. Credit scores are incredibly important as they’re the key factors used to determine if a person should receive a loan. This post will inform you on how much credit score you’ll need to buy a car and how to improve your score. 

If you need more help, you can look into credit repair in Austin, Texas.

What Credit Score Do You Need To Lease a Car?

The advantages of leasing a car versus buying one outright are that you generally get lower monthly payments. Some experts say you can get anywhere from 30% to 60% lower payments versus buying a car; another big advantage is that you’ll have warranty protection for the entire time you drive the car. 

However, leasing a vehicle is like buying because you still need a decent credit score. According to Nerdwallet, “the average score for customers starting a new lease was 722. If your score is 680 or above, you’ll likely have attractive offers.”

Credit scores above 740 are considered excellent by lenders, and those with scores of 740 and over get the best rates and deals regardless of whether they purchase or lease–but what if your score isn’t so hot? 

According to LeaseGuide.com, if you score between 620-679, you’re still in the ballpark for getting a lease. However, while you’re more likely to be approved with those numbers, you may get a higher interest rate. If your score is below 619, it’s considered “subprime” or “fair” credit. If you have a score in this range, you may or may not get accepted to lease, and if you do, you’ll likely pay a high-interest rate. 

If you have a subprime score, you’re better off taking a few months to improve that number before you go shopping for a new vehicle. Keep in mind that lease requirements always change and vary among auto manufacturers. It’s important to note that market conditions factor in whether or not you get approved, depending on your score. 

Credit Score For Buying a Car

Buying a car has its advantages over leasing. While you pay higher monthly payments, you have the benefit of owning a vehicle when you’ve paid it off and can sell the vehicle when you choose to get another one. Additionally, you have the advantage of being able to modify the vehicle if you want without the fear of breaking a contract. 

However, buying a car is similar to leasing because you still need a decent credit score to get a loan. Nerdwallet.com notes that “the average credit score to buy a new car is 713; it’s 656 for a used-car loan.”

If your score is in the low 700s or below, expect a difficult time getting a loan. You’ll probably have to answer questions about negative credit report entries and jump through hoops to prove your income and verify your payment history.

While it’s possible to get an auto loan with bad credit, which is defined as a score below 600, it’s unlikely–if you do get approved, you’ll pay very high-interest rates. As with leasing, if your credit score is bad, you’re better off spending six to twelve months building your score back up if you can afford to wait. 

How To Improve Your Credit Score

As you can see, having a good credit score is essential to getting good terms on a lease or car purchase, but if you have less than perfect credit, all hope isn’t lost. You can take steps to beef up your score, and it doesn’t take as long as you think, but you might need some tips on how to build your credit score faster. To know what your credit score means, it’s helpful to know how that number is calculated. Credit scores are three-digit numbers that help lenders know how credit-worthy you are. 

No uniform algorithm is used by everyone, which is why you may have different scores from different reporting agencies. Credit reporting agencies look at various factors to come up with that number, including your payment history, your credit usage, whether your accounts are delinquent, and more.

The number one thing you can do to improve your score right away is to make your payments on time from now on. Even if you’ve been late before, start making every payment on time–even if it’s the minimum. 

The next thing you can do to improve your credit score is to pay off your debts and credit cards. The debt to credit ratio or credit utilization ratio is the second biggest factor that goes into your credit score. Do everything you can to quickly bring down those credit card and loan balances to send your score in the right direction.

Another way to better your score is not to take on any more debt if you can afford it. It seems counterintuitive since you’re trying to take on a car loan, but your score takes a hit when you apply for new credit, which is why it’s best to get your score as high as possible before taking on a car loan or lease payment. 

How Credit Scores Impact the Interest Rates of Loans

Your credit score determines if you’ll get a car loan or not, as well as what the interest rates will be if you are approved. Your credit score is a representation of how likely you are to repay your loan–the higher your credit score is, the more likely you are to repay your loan in time. As a result, you are also more likely to get a favorable interest rate and terms on a loan. 

Here are various interest programs that can happen based on your credit score:

  • Super-prime: If your credit score is 781 or higher, you may get an interest rate of 2.34% for a new car loan and 3.66% for a used car loan.

  • Prime: Prime borrowers have a credit score between 661 and 780. At this time, they usually can get an interest rate of 3.48% on loans for new cars and 5.49% on used cars.

  • Near prime: This category of borrowers has a credit score of 601 to 660. For new cars, they can secure a loan with an interest rate of 6.61%; for used cars, an interest rate of 10.49%.

  • Subprime: The credit score for this category is between 501 and 600. These borrowers get loans at 11.03% for new cars and 17.11% for used cars.

  • Deep-subprime: Deep-subprime borrowers have a credit score of less than 500. They generally pay 14.59% interest on a new car loan and 20.58% for used cars.

You might think the difference between 3.66% and 20.58% isn’t significant, but it can be the difference between paying a small amount of interest and an amount equal to half the car's price.

Which Credit Scoring Models Are Used?

Different lenders use different credit scoring methods to decide the interest rate to charge on a car loan. Two of the most widely used services are FICO and Vantage Score. When it comes toFICO versus Vantage, which one is better?

FICO Score

The FICO score is the most commonly used credit scoring method for car loans. Scores range from 300 to 850 and are calculated based on payment history, credit mix, available credit, amount owed, and average credit history. Although your FICO score can differ from lender to lender because lenders prioritize some information over others.

Vantage Score

This is the second most commonly used credit scoring method. It was developed by three major credit bureaus, and the scores range from 300 to 850. The factors that determine the score are depth of credit, balances, payment history, utilization, available credit, and recent credit.

Both of these credit scoring methods help predict how likely a borrower is to repay their loans. Lenders use these services when determining who they should lend money to.

One key difference between the two services is how long each takes to produce a credit score. FICO scores require six months credit history, whereas a Vantage score can create a credit score within a month or two of opening an account.

The bottom line is that your credit score is very important, whether you want to get an auto loan, home loan, or any other type of credit. If you’re in the market for a new vehicle, your best bet is to examine your credit to see where you stand. If you think you need to make improvements, do so before attempting to get a loan. Getting a loan with a high credit score gives you more favorable terms and makes you more likely to be approved. 

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