What Your Credit Score Does to Your Auto Loan

Your credit score determines whether a lender will approve you for an auto loan, and if they do, what interest rate you'll pay. A higher score typically means a lower rate; a lower score means a higher rate or outright rejection. The difference between a 620 score and a 750 score can cost you thousands of dollars over the life of the loan, because even a 1 or 2 percentage point difference in interest rate compounds across 36, 48, or 60 monthly payments.

Lenders use your credit score as a shorthand for risk. A score reflects your history of paying bills on time, how much debt you're carrying, and how long you've had credit accounts open. When you explore for an auto loan, the lender pulls your score from one or more of the three major credit bureaus — Equifax, Experian, and TransUnion — and uses it to decide whether lending to you is worth the risk.

The score that matters for an auto loan is not always the same score you see on a free credit monitoring app. Lenders often use FICO Auto Score, a version of the FICO score designed specifically for auto lending, which weighs payment history and credit utilization differently than the standard FICO score. Some lenders use other scoring models entirely. This means your score for an auto loan may be slightly different from the number you've seen elsewhere.

Key Takeaways

  • Your credit score is the primary factor lenders use to set your interest rate on an auto loan, and a 100-point difference in score can change your rate by 2 to 4 percentage points.
  • Lenders pull your score from Equifax, Experian, or TransUnion, and some use FICO Auto Score rather than the standard FICO score, so your auto loan score may differ from scores you see elsewhere.
  • Scores below 620 are considered subprime and often result in rejection or rates above 10 percent, while scores above 740 typically may have access to for rates under 5 percent.
  • You can request your free credit report from each bureau once per year at AnnualCreditReport.com and dispute errors before you explore for a loan.
  • Paying down existing debt and making on-time payments for several months before explore can raise your score enough to lower your rate by 1 to 2 percentage points.

How Credit Score Ranges Affect Your Rate

Lenders divide borrowers into tiers based on credit score, and each tier carries a different interest rate. The exact cutoffs vary by lender, but the pattern is consistent: higher score, lower rate.

A score of 740 or above is considered prime and typically qualifies for rates between 3 and 5 percent, depending on the lender, the loan term, and current market rates. A score between 670 and 739 is near-prime and usually brings rates between 5 and 8 percent. A score between 620 and 669 is subprime and often results in rates between 8 and 12 percent. A score below 620 is considered deep subprime, and many lenders will not approve you at all; those who do may charge rates above 15 percent or require a co-signer.

To see how this plays out in dollars: on a $25,000 loan over 60 months, a rate of 4 percent costs you about $2,600 in interest, while a rate of 10 percent costs you about $6,800. That $4,200 difference comes down to your credit score. If you're in the subprime range, improving your score before you explore is worth the effort.

What Lenders Look At Beyond Your Score

Your credit score is not the only thing lenders consider, though it is the fastest filter. Lenders also look at your debt-to-income ratio — the percentage of your monthly income that goes to debt payments. If you already owe $1,500 a month and earn $4,000, your ratio is 37.5 percent. Most lenders want this ratio below 43 percent, and some want it below 36 percent. A high ratio can result in rejection or a higher rate even if your credit score is decent.

Lenders also check your payment history in detail. A single late payment from five years ago hurts less than a recent one. A bankruptcy or foreclosure on your record makes approval harder, though lenders typically want to see at least two years of clean payment history since the event before they'll approve you. A repossession is treated more seriously than a missed payment, because it shows you stopped paying and the lender had to recover the car.

Your income and employment history matter too. Lenders want to see stable income — either W-2 employment for at least two years, or self-employment income documented with tax returns. A recent job change or a gap in employment can slow approval or result in a higher rate, even if your credit score is strong.

How to Check Your Credit Score Before You explore

You can see your credit report for free once per year from each of the three bureaus at AnnualCreditReport.com, the official site run by the three bureaus themselves. This report does not include your credit score, but it shows all the accounts and payment history that the score is based on. Checking your report this way does not hurt your score.

To see your actual credit score, you have several options. Many credit card issuers and banks now show your FICO score for free in your online account. Credit monitoring services like Credit Karma and Experian offer free scores, though these are usually educational scores, not the exact FICO Auto Score a lender will pull. You can also buy your FICO score directly from MyFICO.com for about $20 per bureau.

When you check your report, look for errors: accounts you don't recognize, late payments that were actually on time, or accounts that should be closed but still show as open. If you find an error, you can dispute it with the bureau by mail or online. Disputes typically take 30 to 45 days to resolve. If you're planning to explore for a loan in the next few months, it's worth checking your report now and fixing any errors before you explore.

Raising Your Score Before You explore

If your score is below 700 and you have time before you need the car, you can take steps to raise it. The most effective move is to pay down existing debt, especially credit card balances. Your credit utilization ratio — the percentage of your available credit you're using — makes up about 30 percent of your FICO score. If you have a $5,000 credit limit and a $4,500 balance, you're at 90 percent utilization. Paying that down to $1,500 (30 percent) can raise your score by 50 to 100 points within a few months.

Making all your payments on time for several months also helps. Payment history is 35 percent of your score, and recent payments matter more than old ones. If you've had late payments in the past year, making on-time payments now will gradually improve your score. You won't see a dramatic jump, but after three to six months of clean payment history, your score should move up by 20 to 50 points.

Avoid opening new credit accounts or explore for new credit in the months before you explore for an auto loan. Each process triggers a hard inquiry, which temporarily lowers your score by a few points. Multiple inquiries in a short time signal to lenders that you're desperate for credit, which raises their risk assessment. If you must explore for credit, do it all at once — multiple auto loan inquiries within 14 days typically count as a single inquiry for scoring purposes.

What Happens When Multiple Lenders Pull Your Score

When you explore for an auto loan, the lender pulls your credit report and score. If you explore to multiple lenders — which is often a smart move to compare rates — each pull is a separate hard inquiry. However, the credit scoring models treat multiple auto loan inquiries differently than inquiries for other types of credit. If you have multiple auto loan inquiries within 14 to 45 days (the window varies by scoring model), they typically count as a single inquiry for scoring purposes.

This means you can shop around with different lenders without each process hammering your score. The key is to do your shopping within a short window — ideally within two weeks. If you space out your applications over two months, each one counts separately and your score takes a bigger hit.

After you've chosen a lender and been approved, that lender will do a final pull of your credit report before funding the loan. This is normal and expected. Your score may drop by a few points, but it will recover within a few months of on-time payments.

Co-Signers and Credit Score

If your credit score is too low to get approved on your own, a co-signer can help. A co-signer is someone with better credit who agrees to pay the loan if you don't. The lender will pull the co-signer's credit score and use it (along with yours) to make the approval decision and set the rate. A co-signer with a score above 700 can often get you approved when you wouldn't be on your own, and can lower your rate by 2 to 4 percentage points.

Be aware that the co-signer's credit score will also be affected by the loan. The loan appears on their credit report as debt they're responsible for, which can lower their score by 10 to 50 points initially. If you miss payments, it damages the co-signer's credit as well as yours. Make sure any co-signer understands the commitment they're making.

Frequently Asked Questions

Does checking my credit score hurt my score?

No. Checking your own credit score or report is a soft inquiry and does not affect your score. Only hard inquiries — when a lender pulls your report to make a lending decision — lower your score. You can check your free annual report at AnnualCreditReport.com and your score through your bank or credit card issuer without any impact.

How long does it take to raise my credit score?

It depends on what's dragging your score down. Paying down credit card debt can raise your score by 20 to 100 points within one to three months. Making on-time payments for six months can raise your score by 30 to 50 points. Late payments and collections take longer to recover from — typically one to two years before they stop hurting your score significantly.

Can I get an auto loan with a credit score below 600?

Some lenders specialize in deep subprime lending and will approve borrowers with scores below 600, but rates are typically 15 percent or higher, and you may need a co-signer or a larger down payment. It's worth checking with credit unions and online lenders, which sometimes have more flexible requirements than traditional banks.

What if I have no credit history at all?

No credit history is different from bad credit, but it can still make approval harder. Lenders have no payment history to evaluate. You may need a co-signer, a larger down payment, or a credit builder loan to establish history before you explore for an auto loan. Some credit unions and online lenders will work with borrowers who have no credit history if you have stable income.

Does my credit score affect the down payment I need?

Not directly, but indirectly yes. Lenders set down payment requirements based on risk. A borrower with a 650 score might need 15 to 20 percent down, while a borrower with a 750 score might need only 10 percent. A larger down payment lowers the lender's risk, which can help you get approved or lower your rate even if your score is lower.