How Credit Scores Affect Car Financing

Your credit score plays a major role in the interest rates, loan terms, and even approval chances you receive when applying for auto financing. Dealerships and lenders use it as a snapshot of how likely you are to repay debt on time.

However, the score a dealer sees isn’t always the same number you might see on consumer credit apps. Most auto lenders rely on a specific version of the FICO scoring model called the FICO Auto Score, which is designed to predict the likelihood of paying an auto loan as agreed. Understanding how this specialized score works can give you an advantage when preparing to finance your next vehicle.

Understanding FICO Auto Scores

FICO Auto Scores use a scale of 250 to 900, while standard FICO Scores range from 300 to 850. The auto version places more weight on your past auto-related credit history. For example, late payments or repossessions from previous car loans carry a greater negative impact than late credit card payments.

Auto lenders often pull your credit file from all three major bureaus—Experian, Equifax, and TransUnion—and receive three FICO Auto Scores in return. They typically base their decision on either the middle score or the highest of the three.

According to FICO, lenders can choose from several versions of the Auto Score, but Auto Score 8 and Auto Score 9 are the most widely used today. While these models are not visible on most consumer credit apps, they can be purchased directly from FICO if you want to see what lenders will see.

What Score Ranges Mean to Auto Lenders

Car dealers and lenders classify applicants into credit tiers. These tiers help them quickly determine interest rate brackets and risk levels.

• 720 and above (Excellent): Eligible for the most competitive interest rates and longest terms.
• 660–719 (Good): Typically approved with favorable rates and terms.
• 600–659 (Fair): May be approved but with higher interest rates.
• Below 600 (Subprime): Limited options, higher down payments, and steeper interest rates.

According to Experian’s State of the Automotive Finance Market, the average credit score for new car loans in 2024 was around 744, while used car loans averaged 683. This shows how much a credit tier can impact what financing you’re offered.

How Subprime Financing Works

Buyers with scores below 600 often fall into the subprime category. While approval is still possible, it usually involves:

• Larger down payments (10%–20% or more)
• Shorter loan terms
• Higher interest rates (often 10%–20% APR or above)
• Income verification and strict documentation

Some dealerships specialize in “buy here, pay here” (BHPH) financing, which caters to subprime borrowers. However, these loans often carry high rates and limited reporting to credit bureaus, meaning they may not help rebuild credit.

Improving your score before applying can shift you into a better tier and save thousands over the life of the loan. Even moving from subprime to fair credit could cut your interest rate by several points.

Building Credit Before Buying a Car

If your credit score isn’t where you want it, taking time to build it before applying for financing is one of the smartest steps you can take. A few ways to strengthen your profile include:

• Paying down existing debt: Reducing credit card balances lowers your credit utilization ratio.
• Making all payments on time: Payment history makes up 35% of your FICO score.
• Becoming an authorized user: Being added to a family member’s account with a strong payment record can boost your score.
• Using a secured credit card: This helps establish credit if you have little or no history.

According to the Consumer Financial Protection Bureau, even 3–6 months of on-time payments can result in noticeable score increases, which can help you qualify for better rates.

The Role of Income and Debt-to-Income Ratio

While your credit score is crucial, lenders also consider your debt-to-income (DTI) ratio, which measures the percentage of your monthly income allocated to debt payments. A lower DTI reassures lenders that you can handle a car loan comfortably.

Most auto lenders prefer a DTI under 40%. If your existing debt load is high, paying down balances or consolidating debt can improve your approval odds even if your credit score doesn’t change.

Myths About Credit Scores and Car Buying

There are several misconceptions about how credit scores work in auto financing:

• Myth: Checking your score lowers it.
  • Fact: Soft inquiries, such as checking your own credit score, do not affect your credit.
• Myth: Income affects your credit score.
  • Fact: Income is not part of your credit score but is considered separately by lenders.
• Myth: Closing old accounts raises your score.
  • Fact: Closing accounts can reduce your average account age, which can lower your score.

Clearing up these myths can help you make smarter decisions when preparing to apply.

Why Knowing Your Score Before Shopping Matters

Walking into a dealership without knowing your credit profile puts you at a disadvantage. Sales staff may try to place you in a higher-interest loan than you qualify for if you appear uncertain.

Request your complete credit reports from AnnualCreditReport.com (free once per week from each bureau) and consider purchasing your FICO Auto Scores from MyFICO. This preparation helps you recognize unfair offers and negotiate confidently.

If you’re also weighing loan term options, review our 60 vs 72-month car loan comparison to see how term length impacts total interest and monthly payments.

How Credit Scores Affect Your Total Loan Cost

A higher credit score doesn’t just improve your approval odds—it can dramatically lower the cost of borrowing. For example, someone with a 760 score might get a 5% APR on a 60-month loan, while a borrower with a 610 score could be offered 14% APR.

On a $30,000 car loan, the difference in interest paid over five years could be more than $6,000. This is why improving your score even slightly before buying can have a huge payoff.

Preparing Your Credit Profile for Auto Financing

Think of your credit score as part of your overall buying power. Lenders want to see a stable pattern of responsible borrowing. Review your credit reports for errors, dispute inaccuracies, and avoid applying for new credit in the months leading up to your car purchase.

You should also set a clear budget based on your income and monthly obligations, so you don’t accept a loan that will strain your finances. Aligning your budget, DTI, and credit score gives you the strongest possible position at the negotiating table.

Using Credit Knowledge to Get the Best Deal

Car dealers use specialized auto credit scores, not the general consumer scores most people check on their phones. Understanding this difference—and taking steps to raise your score, lower your debt ratio, and gather documentation—can position you for the best rates and terms available.

Buyers who enter the showroom knowing their credit standing often save thousands and avoid overpaying for financing. A little preparation before you shop can transform the entire buying experience from stressful to strategic.