If you’re in the market to buy a car, you’re probably also looking for a car loan. You can drive away in a new car without having the funds to buy it outright with the help of a trusted financial institution, like T&I Credit Union. We’ll supply the funds for your car and let you pay it back over time.
If you finance a car with a loan, you’ll end up paying the price of the loan in addition to the car price. The amount you pay for a loan depends on your credit score, which varies based on which agency calculates it. If you’re looking for an auto loan, you might be wondering which credit score your lender will use to determine the loan terms.
About Credit Scores
A credit score is an index that lenders use to determine how likely it is that you’ll default on the loan. If you have an excellent credit score, lenders will know that you’re very likely to pay back your loan on time, making the loan less of a risk to offer. This results in a lower interest rate on the loan, which means the loan will be cheaper overall.
Credit scoring models take account of your credit history found in your credit report to produce your credit score. Most have a scoring range from 300-850 with higher numbers corresponding to better credit.
Different Types of Credit Scores
There are several credit scoring models, and each model uses similar, yet minorly differing, criteria to determine credit scores. FICO and VantageScore are the two market leaders. They use information from the three major credit report companies, Experian, Equifax, and TransUnion.
FICO and VantageScore provide generic credit scores that index your general credit-worthiness, but FICO also offers industry-specific scores to provide specific lenders, including auto lenders, with a more accurate estimate of your credit-worthiness.
Which Score Auto Lenders Use
Auto Lenders don’t always advertise which credit scoring model they use, but you can be fairly confident they will use a generic FICO or VantageScore or FICO Auto Score before offering a loan. Some lenders might even use two scores in concert to create an average credit score.
Don’t Fret the Details
At the end of the day, the version of your credit score that auto lenders look at doesn’t make much of a difference. Your credit score based on FICO and VantageScore will be very similar. In addition, healthy financial habits will result in a higher score, no matter what credit scoring model you use.
How to Find Your Credit Score
Before applying for an auto loan, you’ll want to check your credit score – any version of it – to have an idea of what loan terms you can expect. Most credit card companies will offer monthly credit score updates that often even come with explanations on what is causing you to miss points.
When you bank with T&I Credit Union and open a Visa credit card, you’ll get free access to your FICO credit score each month. It’s important to check your credit score often so you can catch any mistakes that might cost you on a loan.
For a more detailed explanation of how lending companies view your credit history, check your credit report. Each of the three major credit report companies offers one free credit report annually. An Experian credit report also gives you free access to the latest FICO Score.
About T&I Credit Union Auto Loans
T&I Credit Union offers new and used-car loans so you can afford this big investment by paying for it in monthly installations. We offer competitive APRs starting at 2.99% for a new car loan of up to 60 months and 3.99% for a used car loan of up to 60 months.*
Longer repayment periods are also available for new-car loans at rates as low as 3.75%* for an up-to 72-month loan, and 3.99%* for an up-to 84-month loan.
We also offer a GAP insurance program to protect you from a loss if you total your car. GAP insurance will also cover up to a $500 deductible for any damage done to your car for three years.
What Credit Score Do You Need for an Auto Loan?
The average credit score for people taking out an auto loan in 2019 was 715 for a new car and 662 for a used car. That doesn’t mean you need a credit score close to these to get an auto loan, but borrowers with bad credit will have to pay more in interest for their loans.
At T&I Credit Union, we take your credit score into account when deciding what consumer credit products we can offer you at what rate. However, we’ll also consider other documentation of your ability to pay for a loan.
Be prepared to explain your credit history to a T&I Credit Union representative. Overcoming past credit struggles are great things to bring up when discussing the terms of a loan. You might also bring proof of employment and documentation of your assets to the table for a more favorable loan offer.
How to Improve Your Credit Score
While credit score isn’t the end-all when it comes to finding an auto loan, it can make a huge difference in the amount you pay for it. If you have bad credit, you’ll benefit from increasing your credit-worthiness before applying for an auto loan.
You’ll improve your scores by making timely payments on your debts. Try to start with your credit cards; set up autopay to make on-time payments easy to accomplish and try to keep the percentage of your credit limit that you use, or your utilization rate, below 30%.
A simple way to keep your utilization rate low is by keeping your credit cards open, even if you don’t use them. By having a higher available credit limit, you’ll have a lower utilization rate even if you don’t decrease your credit card spending.
If you can’t pay your balances to lower your utilization rate, consider transferring your debt into a debt consolidation personal loan. T&I Credit Union debt consolidation loans simplify your monthly payments and offer a much lower APR than credit cards offer.
Use a Car Loan to Improve Your Credit Score
Once you have an auto loan, managing it properly can help you improve your credit score by improving your payment history and credit mix. Making on-time monthly payments strengthens your payment history, and having both installment loans and revolving credit creates a preferable credit mix, which can also boost your credit score.
T&I Credit Union offers additional products and services to members to aid them on the journey to financial security. If you are considering taking out a car loan or are trying to improve your credit score, banking with us is a great way to get started. Call us at (248) 397-9345 to see how we can assist you.