Ready to roll in a brand new (or new to you) car? Like most people, you’ll probably need to pay for your vehicle over time with an auto loan. Your credit score will be critical in determining whether you’re approved for a loan and what rate and terms you’re offered.

So, what credit score do you need to buy a car? Let’s take a look at how credit ratings work and how your credit score will affect your total borrowing costs over the life of your auto loan.

What Is Your Credit Score?

Your credit score is a way for Pacific NW Federal Credit Union to measure how good you will be at repaying the money you borrow. Credit agencies track how you pay off any money you owe, from monthly bills to credit cards and personal loans, and use this information to generate a score reflecting how well you use the credit available to you.

In general, you can improve your credit score by paying your bills and loans on time — and never missing payments. You also need to be prudent about the amount of debt you carry relative to your income. You can check your credit score easily online, or with any of the three credit bureaus.

How Credit Scores Impact Auto Loan Rates

While you may be able to buy a car with almost any credit score, your score will directly affect the interest rate, or annual percentage rate (APR), you will qualify for on your auto loan. The higher your credit score, the lower your auto loan rate. 

You may also lower your APR by putting more money down or by shortening the length of your loan, because shorter loan terms get lower rates. 

A low credit score will mean you get a higher rate and you’ll pay more total interest, especially if you choose a longer loan term. You might need to get someone with better credit to cosign on your loan. You may also need to pay additional charges or take out loan insurance.

Credit Score Needed to Buy a Car

The three main credit bureaus are Experian, Equifax and TransUnion. They use the information they gather about your credit history to generate a FICO credit score between 300 and 850. This is the number you see when you check your own credit, although PNWFCU may use a more specialized credit rating model.

Your FICO credit score is generally broken down into five tiers:

• Exceptional: 800 to 850
• Very good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 300 to 579

You have a good chance of being approved for your auto loan if you have good to exceptional credit. If you have fair to poor credit, you may still be able to qualify for loans but with more restrictions on your loan amounts and terms.

If you’ve got little or no credit, you may need to shop around for the best offer. PNWFCU’s First Time Auto Buyer Loan has a discounted rate* and flexible terms, so it’s a great way to responsibly build credit as you build your future.

In 2021, 71% of Americans had a “good” credit score of 670 or better, according to Experian, while the average credit score was 714.

How to Improve Your Credit Score

Your credit rating has a significant impact on the total amount you will end up paying for your car, so it’s a good idea to take steps to improve your credit score before you apply for your auto loan.

Check Your Credit Report

The first step is to access your full credit report and to go through it carefully. Keep an eye out for:

• Incorrect personal or payment information
• Potential fraudulent transactions
• Unpaid or overdue amounts you were not aware of

If you find any of these issues, contact the credit bureau, bank, credit card issuer or vendor to correct information, report fraud, or settle or pay down payments.

Reduce Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) refers to the total amount of debt payments you owe every month divided by the total amount of money you earn each month. Lenders prefer to see a lower debt-to-income ratio when you’re applying for credit. To improve your DTI, you should pay down your debt and postpone large purchases.

Improve Your Credit Utilization Rate

Also known as your debt-to-credit ratio, this measures how much of your total available credit you are using. A rate below 30% is considered good and should help improve your credit score. This means if you have a credit card limit of $1,000, you use only $300. 

Another tip is to keep your old credit card accounts open and carry a zero balance by paying your purchases off in full each month. For example: If you have two credit cards with a $1,000 limit each and you use only $300, then your credit utilization rate is even better. 

Get Pre-Approved With PNWFCU

Now that we know the answer to your question — what credit score do you need to buy a car — we can take a closer look at auto loans. Whatever your credit score may be, you can avoid surprises at the showroom by getting pre-approved for an auto loan. 

Pacific NW Federal Credit Union offers competitive auto loans tailored to your financial situation, along with a speedy pre-approval process and great friendly service.

With a pre-approved auto loan in hand, you will:

• Know what rate you’ll likely get so you can estimate your monthly payments 
• Work out an affordable purchase price for your car
• Choose the best loan term for your budget 
• Select add-on services you need and want instead of being upsold on the spot
• Have the confidence to shop around for cars, not financing
• Protect your credit score by avoiding multiple hard pulls from dealerships

At PNWFCU we also offer our members:

• Discounted rates for first-time car buyers
• Affordable mechanical repair coverage and loan protection
• Half-off CARFAX vehicle reports

Click below to learn more about our user-friendly loan application and pre-approval process!

How to Buy a Car with a Pre-Approved Loan