Understanding your credit score and knowing what is considered a good score can help you make an informed decision about purchasing the car of your dreams.
In this article, we will discuss the answer to whether or not 700 is a good credit score to buy a car, as well as some tips on how to improve your credit score if needed.
What’s a Good Credit Score to Buy a Car?
When it comes to purchasing a car, your credit score plays an important role in determining what kind of loan you can get and the interest rate associated with it. Generally speaking, the higher your credit score is, the better chance you have of getting a lower interest rate on your loan.
To give a ballpark figure, most lenders consider a score of 700 or higher to be a good credit score. Of course, this can vary depending on the lender, but it is a good benchmark to aim for if you are looking to get the best loan terms possible.
According to Experian Information Solutions, here are the annual percentage rates for car loans you may be able to secure depending on your credit score:
|Credit Score||Average APR (New Car)||Average APR (Used Car)|
|Deep subprime: 300-500||12.93%||19.81%|
What is a FICO Auto Score?
The FICO auto score is a scoring system that is tailored for auto lenders to help decide whether or not to approve an application for a car loan. It’s based on information from the individual’s credit report and uses predictive analytics to assess the risk of granting a loan.
The score ranges from 250–900, with higher scores indicating lower levels of risk. People with higher scores tend to have better loan terms and lower interest rates.
The specifics of the FICO auto score are not made public, but it differs from the standard scores by incorporating factors such as the length of time since a credit inquiry was made, how recent your car loan inquiries are, and the types of vehicles that have been inquired about.
Learn about the different types of fico scores.
What Credit Score Do Car Dealers Use?
When you’re shopping for a car and start the financing process, the dealership will likely pull your credit report to assess your creditworthiness. It is important to be aware of which type of credit score they use so that you can get an accurate picture of where you stand financially.
Typically, car dealers use the FICO auto score, taking information from your credit report to assess your risk levels and creditworthiness when it comes to taking out a car loan or lease. In addition to using the FICO auto score, some dealerships might also use their own in-house scoring system to assess potential customers. This score could be based on a variety of factors and is usually not shared with the customer.
We should always keep an eye on the health of our credit score, aim to improve it, and lastly safeguard it against malicious activities like identity theft so we have the biggest chance of covering all the needed factors.
Can I Buy a Car With a 700 Credit Score?
It is possible to buy a car with a 700 credit score, but it depends on what type of loan you are looking for and the terms that come with it. Generally speaking, a 700 credit score will qualify you for more favorable interest rates than those with lower scores.
That said, having a higher credit score can make it easier to get an auto loan from a lender willing to offer you the best terms. Your credit score may also impact the amount of money down you will need to put on the vehicle and whether or not you are required to make a larger initial payment.
A high score can also help you get approved for longer loan terms and more lenient repayment options that might not be available to those with lower scores.
Is It Necessary to Pay a Down Payment on a Car If You Have a Credit Score of 700?
The answer to this question really depends on the lender and the type of loan that you’re applying for. Generally, if you have a credit score of 700 or higher, you may not be required to provide a down payment when financing a car purchase.
However, it is still possible that a lender could require one in certain cases, especially if they feel that you don’t have sufficient funds or income to cover the loan. Certain types of car loans such as those with extended terms (longer than five years) or subprime loans (for individuals with lower credit scores) may require a down payment.
Ultimately, it’s best to discuss the requirement for a down payment with your lender to see what they require.
How Can You Improve Your Credit Score?
Improving your credit score is possible, but it takes time. To make a significant improvement in your credit score, you need to make sure that all of your payments are made on time and that you do not carry any high-balance credit cards. Reducing existing balances and negotiating with creditors can also help improve your credit score.
Aside from those, you can use credit-building methods such as obtaining secured credit cards, becoming an authorized user on someone else’s account, and ensuring that your name is not listed on any fraudulent accounts.
The most important thing you can do is monitor your credit score over time, as this can give you an idea of how effective your efforts have been. You can request a free credit report once a year from each of the three major bureaus: Equifax, Experian, and TransUnion. Once you get your hands on your credit report, check for errors and dispute them with the credit bureaus.
Does It Hurt Your Credit Score to Buy a Car?
It is true that buying a car can have an impact on your credit score, but the effect is often not as dramatic as people think. When you buy a car, there are two primary ways it can affect your credit: applying for financing and making payments.
When you apply for financing, lenders will usually do a “hard inquiry” into your credit history. This means they will look at your credit report and score to decide if you qualify for financing and what interest rate to offer you.
While this does cause a slight dip in your credit score, the effect is usually minor and only temporary — it typically drops no more than 5-10 points, and returns to normal within a few months.
Once you have the car, it is important to make your payments on time and in full each month. Every missed or late payment will be reported to the credit bureaus and can bring your score down significantly.
Remember that if you finance a car with a longer loan term (more than 5 years), your credit utilization rate (the amount of available credit you use compared to your total limit) will go up, which can have a negative effect on your score.
Buying a car does have an impact on your credit score, but if you manage it responsibly by making payments on time and in full each month, it will have a minimal effect. In the long run, your credit score should remain relatively unchanged or even improve if you follow a responsible budget and use good financial habits.
How Fast Will a Car Loan Raise My Credit Score?
Taking out a car loan can significantly raise your credit score. The amount and speed of improvement depend on several factors, including the size of the loan, how quickly you pay it back, and how much debt you already have.
The larger the loan, the more it will impact your credit score. If you take out a loan for over $10,000 and keep your payments up to date, you could see an improvement in your score of 70 or more points.
Other factors that can influence the size of the credit score boost from taking out a car loan include:
- How much debt you already have
- How many accounts you have open
- Whether you have any delinquencies or bankruptcies on your credit report.
Your payment history also plays a big role in how quickly your credit score will go up when you take out a car loan. If you make all of your payments on time, without fail, your score can increase more rapidly than if you miss or delay payments.
Your Car Loan Can Help You Build Better Credit
Taking out a car loan can help rebuild your credit score. When you make timely payments on your loan, this positive action will be reported to the relevant credit bureaus and make it easier to qualify for other forms of financing down the road.
The good news is that car loans are typically easier to qualify for than other types of financing, such as credit cards or personal loans. This makes it a great way to start rebuilding your credit score and creating a better financial future.