If you worry that your credit score could keep you from buying a car, you underestimate how much car dealers want to sell you one.
There is no minimum credit score needed to buy a car. More than 20% of car loans go to borrowers with credit scores below 600, according to data analyst Experian Information Solutions. Nearly 4% go to those with scores below 500.
Of course, a higher score will almost certainly get you a lower interest rate and require less paperwork than a lower one. When do you need to worry?
Under 500 means you won’t get good rates. It doesn’t mean you can’t get a car.
If your score is below about 700, prepare for questions about negative items on your credit record and be able to document your answers, says Mike Bradley, internet sales manager at Selman Chevrolet in Orange, California. Matt Jones of the automotive shopping site Edmunds.com says the number may be closer to 680.
Both men say they’ve seen people get financing — sometimes even “top tier” financing — with scores that are much lower.
Still looking for an absolute number under which no one gets financing? There’s no such number, but Dave Cavano, who manages the car-buying service for Auto Club of Southern California, says, “Anything under 500 is a flashing red light.”
That means you won’t get good rates. It doesn’t mean you can’t get a car.
What to expect in the finance office
A 2016 Experian report found that average scores for borrowers are 711 for a new-car loan and 654 for a used-car loan. But people with major blemishes on their credit are routinely approved for car loans.
If you have a low score, be ready to document that you have been paying bills on time for the past six to eight months.
For example, someone who has a low score from a business debt, but has not missed a car payment in 20 years, may be approved. You also are more likely to get financing if you have a stable job, own a home and put down a substantial down payment (Bradley recommends 25%).
Buyers may need to show pay stubs, proof of residence, cell phone bills and proof of current full-coverage auto insurance, he says. “If you come in with all your ducks in a row, we can get you a car,” Bradley says.
Cavano says if you have a low score, be prepared to document that you have been paying bills on time for the past six to eight months. If you were late in the past, be ready to explain why. “Lenders want to hear that you’ve overcome issues and can prove it,” he says.
Would-be buyers told by one dealer that their “scores aren’t strong enough” may be able to get financing (or financing at a lower rate) elsewhere, Jones says. A big dealership with a lot of sales is likely to have arrangements with lenders that specialize in finding financing for people with credit challenges, he adds.
Someone with a score in the low 700s might see rates on used cars of about 5%, compared with 15% or more for a buyer with a score in the mid-500s, according to data provided by Experian. On a $20,000, five-year loan, that’s a monthly payment of $483 compared with $378 for the buyer with better credit. Plus, in most states, bad credit can mean much higher car insurance rates, too.
Get your credit ready to buy
It’s smart to have some idea what dealers will see when they check your credit profile. You can get a free credit score, updated weekly, from NerdWallet.
A free score, so long as it’s on a 300-to-850 scale, is likely to give you a rough idea of where you stand so you aren’t disappointed if you don’t get an advertised rate.
You can also buy your FICO automotive score through the company website. That score gives more weight to how you have repaid car loans in the past.
If you have time to delay your car purchase, work on improving your credit. And if you’ve already signed the dotted line on a higher-rate loan, keep an eye on your scores. You may be able to refinance your auto loan at a lower rate if you’ve made on-time payments for six to 12 months.