A Numbers Game: What is a Good Credit Score for a Car Loan?
If age is the most feared number, it’s safe to say credit scores are a close second. Those 3 digits serve as a framework for so many aspects of our lives, deciding whether we can own certain possessions or make certain transactions.
Applying for a car loan is one of those things. And if you’re in the process of buying a car with financing in mind, you’re likely thinking about your credit score, especially if your finances are somewhat compromised.
So what number do you need to get a loan for a new ride?
The Magic Number
If you want a “cut-off” point, a number that serves as an absolute minimum, imprint these three digits on your brain: 630. If your score sits there or higher, you’ll more than likely qualify for a loan. But that’s just the short answer. You could get approved if your score is lower (in special cases), and of course, higher, and it’s vital to remember too that a healthy credit score doesn’t even guarantee you a car loan.
But, if credit scores are what concern you most, take note of the following ranges and how they’ll impact your application outcome.
Reach 760 or above, and you’re among the “elite”, the credit sweetspot. A number of 760 or more indicates you are a highly responsible person when it comes to your finances, and a creditor or lender seeing such a number will put much faith in you. Assuming other aspects of your finances are in order, you will also qualify for the lowest rates possible.
Very Good (725 – 759)
You’re still sitting pretty if in the “very good” range. You shouldn’t have any problems with getting a car loan if your score sits here, and lenders will likely see you as someone on whom they’re willing to take a “risk”.
Good (660 – 724)
If you’re in this range, you shouldn’t have too much difficulty with securing a loan. You should have no trouble finding affordable rates, although they may not be the lowest. Be careful if you’re at the lower end of this range, however. Slipping too low can make a lender more hesitant to approving you, or at least, approving you for the low rate you want.
Fair (560 – 659)
Once you’ve hit “fair” territory, approval for a loan turns into a tricky affair. In fact, credit card companies and lenders start to consider people with fair credit as “higher risk” individuals. A score under the aforementioned 630 tends to mean loan denial or approval for high-interest loan.
Poor (300 – 559)
At the bottom of the barrel, rests the “poor” category. It’s not a pleasant place to be in since the only option are loans with very high interest rates, often in the double digits. This is true whether you want a car loan, business loan or mortgage. Fortunately, there are options if you are in this bracket, and they can help you climb out of this territory if you’re willing to commit to regular and timely payments.
Sky’s the Limit
Now, let’s get back to the question of having a “good credit score” for a car loan. Earlier, we mentioned that a score of 630 is generally the minimum for getting approved without any issues, but considering the fact we said that higher scores mean lower rates, it would be better if your score is the 700s or higher. With a score in the “excellent” or “very good” range, you’ll find the best rates – numbers in the prime market. The same is true if you’re on the opposite end of the spectrum. A lower score excludes you from the lowest rates; that typically includes those who have fair or poor credit.
Keep in mind too, that the minimum standard for companies differs. Some lenders will only work with those who have outstanding credit, others will cater to those with challenged credit and some, unfortunately, have no standards at all (the ones who take advantage of their customers). However, most companies will set their limits in the mid-600 range, somewhere 620 – 650.
- There is no ideal score but a higher score is always better
- Even if your credit score isn’t perfect, you can still secure a loan with affordable rates
- The cut-point for prime vs subprime rates sits between 620 – 650
Reminders for a Healthy Credit Score
Regardless of where your current score falls, there are some basic practices that can help you maintain a good score or repair a damaged one, no matter who you are.
- Avoid missing payments – Forgetting your monthly payments is one of the fastest ways to lower your credit score. Make it your goal to pay your bills and debts on time.
- Don’t carry a balance (if possible) – You might not be able to pay a debt in full, all at once. However, don’t believe the myth that holding onto a balance can improve your credit score. Do it for too long, and your score will drop!
- Keep loan applications to a minimum – Too many applications works= against you in two ways: 1) More credit inquiries which lowers your score, 2) Lenders who are hesitant to grant you a loan due to a perceived lack of irresponsibility. The lesson? Don’t apply for too many loans.
Ultimately, the answer to having the right credit score, is to have a high number in the first place. If you can stay in the excellent range (760+), you’ll be golden. Even if you can maintain a score in the very good range (725 – 759), you won’t have any problems securing a loan that offers you great rates and discounts. By means of responsible payment habits, you’ll find it easy to maintain a score that only gets you the best deals on car loans.