Thinking about upgrading your ride? Your credit score just may be along for the ride. While you don’t have to have perfect credit to buy a car, your credit approval rating can shift the gears when it comes to what type of loan terms you can get. Not sure what your credit score is? It’s easy to find out, and then you can go from there.

What is a Credit Score?

If you’ve heard the term credit score or credit approval, but you’ve never checked into yours before, you might be wondering what it’s all about. A credit score is a number that represents how credit worthy you are. Everyone has a three-digit number, usually between 300 and 850. Higher scores generally mean a lower risk, which means you can get better loan terms and lower interest rates.

Is There a Minimum Credit Score Needed to Buy a Car?

There’s no magic credit score that’s required to buy a car, but higher scores will get you better rates and terms. Lenders have different standards when it comes to what they will offer, and most have minimum requirements for their financing plans.
If you have a low credit score it doesn’t mean you can’t get a loan, it just means that you’ll have to pay more for your vehicle over the life of the loan.

Lower Credit Score, Higher Rates

If you have excellent credit, the average rate for a new car loan is 5.18% and 6.82% for a used car. This is known as Super Prime. The average borrower falls into the Prime rate with numbers that look more like 6.7% for a new car and 9.06% for a used car. Keep in mind that interest rates go up and down depending on the federal government.
If you have a low credit score, you’re looking at either subprime or deep subprime. These interest rates look more like 13.22% for new cars and as high as 21.58% for used cars.

Better Rates Are Possible

If your score is low and you can put off buying your car for a few months, you can take some steps to improve your credit before applying and possibly qualify for a better loan. If you can’t wait, build up your credit and then try to refinance your loan to lower your rates.
The first step to building your credit score is finding out what is bringing it down. Experian, Equifax, and TransUnion are the companies that provide credit reports. Once you get your report, you can see where the problems lie.

Steps to Better Credit

Pay your bills on time! This is one of the most important steps. Your payment history is one of the biggest factors in your credit score, and even one late payment can bring it down. The next step is to reduce your credit card balances. Pay them down as far as you can, but keep them open even if you pay them off.