What Credit Score is Required for a Car Loan

Most Pinoys don’t have enough money to fund their dream cars and cover their basic necessities at the same time. Luckily, banks and private lending companies offer auto financing programs that allow people to purchase a car in installments. Keep in mind, though, that you’ll need a good credit score in order to qualify or get favorable rates and terms. What credit score is required for a car loan? Let’s try to find out!

What is a Credit Score?

A credit score is a number (ranging from 300 to 850) that shows how trustworthy you are when it comes to repaying borrowed money. This number is based on your credit history, which in turn depends on things like the number of open accounts you have, the total levels of your debt, and your repayment history. Moneylenders will look at your credit score when evaluating your loan application. The higher your score is, the more creditworthy you are in their eyes.

Why Credit Scores Matter in Auto Loans?

There are many reasons why you need to have good credit if you want to take on a car loan. For one thing, it will determine whether you’re qualified or not. It can also affect the amount of cash you’ll receive, as well as the interest rates that will go with it. Plus, many banks and lending firms have a required credit score for their loan products.

What Credit Score is Required for a Car Loan?

A survey made by FICO, an international data analytics company, shows how credit scores are categorized. Below is a summarized version.

  • Excellent: 750 to 850
  • Good: 700 to 749
  • Fair: 650 to 699
  • Poor: 450 to 649
  • Bad: 300 to 449

Based on this data, the best credit score to have when applying for a car loan is 650 and above. Lower than that, and your chances of getting your loan application approved would be slim (unless you’re going for a car collateral loan). Also, take note that banks and lending companies sometimes require higher credit scores for financing brand new cars.

How Can You Boost Your Credit Score?

But don’t fret if you have a bad or non-existent credit score. There are many ways for you to give it a boost prior to submitting a loan application. Check some of them out below.

  • Pay Bills on Time
    As mentioned above, credit scores are influenced by a variety of factors, including your repayment history. That being said, paying your bills on time (especially any credit-related dues) will help improve your credit score.
  • Minimize Credit Utilization Ratio
    Credit utilization ratios also have an impact on your credit score. By lowering yours to 30% or less, you’ll be able to boost your credit score. To find your credit utilization ratio, simply divide your total credit balance to your total credit limit.
  • Keep Extra Credit Cards Open
    Aside from being a great financial strategy, keeping any of your extra credit cards active will help maintain your credit utilization ratio (and your credit score by extension). So avoid closing any of your unused credit cards.
  • Look for Score-Boosting Programs
    Banks and financial companies also offer programs from time to time to help consumers improve their credit scores and avail their loan products. If you’re suffering from a bad or non-existent credit score, then you would do well to watch out for these score-boosting programs.

The Takeaway

So what credit score is required for a car loan? The minimum passing score is 650. If yours is the same and above that, then you’re good to go. But in case it’s not, try the tips above to boost it up.

In any case, you need to have a good credit score to get a car loan. So better do your best to maintain a good one.