Before you begin the car buying process, it’s important to find out exactly what your credit history is, as well as your current score. Bad credit history can mean extremely high rates on car loans and insurance, or even worse, could result in you getting turned down altogether.
Finding out exactly where you stand is the first step in ensuring that you are a risk a creditor is willing to take. They’re not going to extend a loan to someone they don’t think is going to be able to pay them back, and you can’t really blame them.
They are betting on the fact that you will be able to make your payments each and every month for the full term of the arrangement. Sure, they make money on you, but if you don’t pay or can’t pay…they are out of luck.
Protect Yourself By Knowing Your Credit Score
One of the key elements of your credit report is your overall score, which is a number that represents your creditworthiness. The higher this number is, the more creditworthy you are. This score, the most popular of which is the FICO score, is used by most car dealers to determine whether or not you can buy or lease a car, and if you qualify for financing.
The score is based on your history with the three major credit companies: TransUnion, Experian and Equifax. It ranges from 300 on the low end to 850 on the high end. Basically, it breaks down like this:
A score in the 300 to 649 is considered bad or poor. You will have a hard time getting a car with credit this low, although there are dealers that will work with you. In most cases, if you are able to buy or lease, your rates will be astronomical, much higher than the next person with decent credit. Why? Because this low score shows that you have had some financial issues, missed payments and otherwise. So if the car dealer is going to take a gamble on you, they need to get a higher return to protect themselves in case you miss payments in the future.
A score in the 650 to 699 range is considered Fair. It’s better than Poor, but not quite at the Good level. You’ll have a much better chance of getting a car, but your rates will likely be a little bit worse than someone with good or very good credit.
Once you are at 700 or better, you’re in much better standing. This shows that you have good financial standing, that you have been able to make your payments on time, and that you are worth the risk. 700-749 is Good, 750-799 is Very Good and anything over 800 is excellent. At the highest scores you can very easily buy or lease a new or used vehicle and get the best financing rates available.
Your Credit Report and Car Buying – Summary
Basically, it’s good to know where you stand before you go into the car buying process so there won’t be any surprises. You may not be aware that your credit is subpar, and might be surprised when the dealer tells you he can’t give you the best deal. Or you might be thinking your credit is poor but your score might tell the dealer otherwise.
The best part is you don’t have to pay for your report. You can get a report from each agency for free once year at annualcreditreport.com.
Experian, TransUnion and Equifax will all give you a full credit report at no cost every 12 months. So you can see exactly where you stand. They all have their own scoring system but they are quite similar as far as range.
So before you start looking at new or used car, pull your credit report and score to know exactly what you can expect when you get to the dealership.