Do you only have the minimum credit score for a car loan? Are you wondering how you can increase your credit score?
Credit Score Defined
Credit scores are numbers between 300 to 850 intended to help lenders make decisions to extend or deny credit based on a consumer’s creditworthiness. Those with a 670 up to 850 mean that the borrower is most likely to be approved for a loan. While those with a score of below 560 mean that the lender is most likely to deny credit.
A credit score is based on a credit report, which contains a number of new credit accounts, types of credit used, amount of debt that you have, payment history, and length of credit history. The lender then does a series of research on whether the person who is borrowing money will repay it, make timely payments, or pay their rent.
Note that this is only one of many pieces of information that will determine a person’s creditworthiness.
Credit scoring varies, but this is the most commonly used basis (credit score range).
300 to 579 = poor credit score
580 to 669 = fair credit score
670 to 739 = good credit score
740 to 799 = very good credit score
800 to 850 = excellent credit score
The average credit score needed to buy a car
A score of 670 and above, categorized good to excellent, is required to buy a car. Interest rates will normally be under 6% if you are categorized under this group. Lending institutions may still consider if you have a credit score of below 670 but may issue higher interest rates.
Bad Credit Score
A bad credit score is one below 670 (fair credit score and poor credit score). Credit scores of 670 are less likely to qualify for better terms. It’s important to prevent a bad credit score as one can lead to these implications:
- Potential rejection for future loans (consolidation loan, education savings plans loans, installment loans, private student loans Canada, mortgages, personal loans, home equity loans, credit cards, auto loans, business loans, home insurance loans, travel loans)
- Potential rejection for rental application
- Trouble getting mobile phone contract
- Trouble in employment background checks as credit rating is a reflection of how an applicant responsibly handles money, especially those applying in personal finance wealth management
- Requirement of security deposits when moving into a new home for utilities such as gas, water, and electricity
Working on your Credit Scores
To maintain a high likelihood of your getting approved for credit loans, here are some ways on how you can maintain and boost credit.
Pay your bills on time.
If you pay your bills on time, your credit scores may become higher and you may be granted pre-approvals and lower interest rates by more lenders.
Don’t skip payments even in a credit card dispute or bill dispute.
Remember that even if you are in a dispute, you’re not spared from paying your credit card amortizations (unless there’s bank implementation that says otherwise).
Don’t apply for multiple credit card accounts in a short period of time.
Multiple credit accounts will raise lending institutions’ eyebrows everywhere. They may think you’re going to run off with the money that you get.
Keep your credit card balance below the credit limit.
Letting financial institutions, credit unions, or credit bureaus know that you can pay credit card bills on time and you’ve not strapped for cash increases the likelihood that you’d be granted another credit card or loan.
Save for a downpayment.
Paying more cash upfront could help your chances of getting approved for a lower rate when you apply for a loan (even with rewards cards on credit). Regularly save for a downpayment on your tax-free savings account and stick with it.
Monitor your credit reports.
Keeping an eye out for your credit report (credit history checking or credit monitoring) affects your credit decision in improving your credit score i.e., whether to spend your money on buying items that you don’t need (which could add up to your credit card bill) or paying more for credit card instead.
Keep looking for loan rates and loan terms that work for you.
Research for loan rates if you’re going to apply for an auto loan (others include personal loan rates, new and used car auto loan rates, etc.) and loan terms that you can pay.
Credit Score Calculation
Even with interest rates above 7%, 68% of borrowers of used vehicles are those with credit scores below 660. Those with the same credit score also accounted for 40% of new-vehicle loans.
To compute your credit score calculation, experts advise looking at a total cost in shopping for an auto loan rather than average loan rate, length of term, or monthly payments. The total cost is the total out-of-pocket cost you incur over the contract. Ask your lending institution if they have a mortgage calculator, loan calculators, or payment calculator to determine total cost.
To illustrate variable interest rates, let’s take a look in a 68-month term in 2018 where those with a credit rating of very good to excellent scores tend to have less than $5,000 interest on total cost. However, those with poor credit scores tend to have a $15,000 difference from their loan amount. So check your credit score if you can qualify for lower interest rates.
Used Car Loans and Financing with RideTime
What do you do when you get denied for a loan or what is offered to you is way up your budget? As mentioned, you keep looking. RideTime has a vast network of lenders where you’ll get approved regardless of credit history.
RideTime can provide you with a used car even because of bad credit history when other dealerships can’t. And even if you have bad credit from divorce, repossessions, or bankruptcy — you’ll most likely be approved as long as you can provide the requirements.
Cars are a necessity. Suppose you have a good credit score; kudos to you. You’ll have no problems in having credit approved. However, if you’ve got bad credit, don’t fret. RideTime can provide you with a quality used car even if you have the minimum credit score for a car loan.