How Your Credit Score Affects Car Financing

How Your Credit Score Affects Car Financing

Cars are expensive. That is why most people will need financing to get a car. Many people do not realize that their credit score affects how much they will have to pay for their car. If your credit score is low, then you may have to pay more in interest. This can cause you to

Cars are expensive. That is why most people will need financing to get a car. Many people do not realize that their credit score affects how much they will have to pay for their car. If your credit score is low, then you may have to pay more in interest. This can cause you to have to pay thousands of extra dollars per year.

It is a good idea to look at your credit score before you apply for an auto loan. Many people assume that most people do not have a credit score that is high enough to get a loan with a low interest rate. However, that is not necessarily true. Experian is one of three major credit bureaus.

Experian stated that 66 percent of people who got approved for a car loan last year had a credit score that was in the prime range. Forty-four percent of people had a credit score that was in the super prime range.

Equifax, Transunion and Experian are the three major credit bureaus. All of the credit bureaus use your past and current financial information to determine your credit score. You will be able to visit annualcreditreport.com and get a free report once a year.

There are also banks that will provide you with a free credit score. Make sure that you check your report for errors. Low credit scores are often caused by errors on your credit report. Even though you can get your credit report for free, you may have to pay for your credit score.

There are Many Scores

Credit scores are also known as the FICO scores. A company called the Fair Issac Company determines the score algorithm. It is possible for people who pull your credit to get different scores. It is also important to note that your credit score can fluctuate from day to day.

Furthermore, there are different credit score scales. Some agencies will use a credit score scale that ranges from 300 to 850. Others will use a credit score scale that ranges from 300 to 900.

The Score Tiers

Lenders typically divide your credit scores into tiers. If your credit score is below 550, then it is considered deep subprime. A credit score that ranges from 550 to 619 is considered subprime. A score that ranges from 620 to 679 is considered non-prime. A prime is considered 680 to 739. A super prime score is above 740. The average Experian score is 681.

Keep in mind that was is considered prime and subprime can vary from lender to lender. The tier that you make a major difference in the amount of interest that you pay. People who have super prime scores typically pay less than 3 percent on a car loan. However, those who have subprime scores typically pay more than 13 percent.

A credit score is not the only thing that lenders will consider when determining whether you are eligible for a loan. They will also consider your work history and income. Neither of those factors are on your credit report.

If you are turned down by a car loan lender, then your score will not be affected. Credit bureaus do not keep track of whether you were approved by a lender. However, they do keep track of the applications.

How to Improve Your Credit Score

  • Avoid maxing out your credit cards. You do not want the limit to exceed 20 percent.
  • Do not close your credit accounts. The unused credit will reflect positively on your credit report.
  • Sign up for automatic payments.
  • Get inaccurate information on your credit report corrected.
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