What is a Good Credit Score for a First-Time Car Buyer?
If you’re in the market for a new ride, you’re likely thinking about makes and models, but you may be forgetting one important factor: your credit score. Serving as a good indicator of the likelihood that you will pay back your loan, your credit score will impact your interest rate as well as your payment plan.
Put simply, the higher your credit score, the more likely you are to repay your loan – and the more attractive you are to lenders, earning a more competitive interest rate and better terms.
Most, but not all, lenders require a credit score of at least 600 to qualify for a traditional auto loan. If your credit score is lower, it is considered “subprime,” making you a candidate for a “bad credit car loan.” These often have higher interest rates. In fact, according to Experian (Q4 2018 data), the average interest rate for a buyer with a credit score between 501 and 600 is 12.2%, more than twice the rate for someone with a score between 661 and 780 (5.0%).
Depending on your financial situation, it may be best to postpone your purchase and focus instead of building your credit. Here are some tips:
- Check your credit reports to determine which areas to address first and to check for potential fraud.
- Catch up on payments for any existing loans.
- Make payments on time moving forward.
- Pay down credit card balances.
Put these tips into practice and you’ll be on your way to better credit!
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