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Getting Cars with Bad Credit: A Guide to FICO Scores

If you are in the market for a new vehicle, you may be wondering what the magic credit score is for qualifying for one. Having good credit can be a big plus in getting an auto loan, and it can help you get a solid interest rate.

But credit scores are not the only factor that determines loan application outcomes. There are lots of cars for sale with bad credit qualifications, so don’t despair if your score is less than stellar. And there are many other factors that dealers use to determine eligibility and interest rates.

The information below lays out some FICO credit score basics, as well as other considerations that may impact your prospect of financing a vehicle. Knowing what these factors are before you visit a car dealer and apply for a loan is valuable information. It can be a strong indicator of your financial health and what you can expect so that you can select the right vehicle for your budget.

FICO Basics

“FICO” stands for the Fair Isaac Corporation, a data analytics company that focuses on credit scoring services. Approximately 90 percent of all lenders use them to determine credit rating.

There are five key score factors that dictate a FICO credit score, with different weights given to each one. They are:

  • payment history (35 percent of score)
  • current debt (30 percent)
  • length of credit history (15 percent)
  • types of credit used (10 percent)
  • new credit (10 percent)

It is important to understand how each of these categories fit into the credit scoring model and how they impact lending decisions, especially if you aim to improve it.

Payment history is whether a borrower has paid their accounts on time. Late payment and missed payments impact the score, as do any bankruptcies.

Current debt is the total amount someone owes across all accounts. Owing a lot by itself does not lower your FICO score. The ratio of the amount owed to available credit and existing assets is what is important.

Length of credit history measures the age of the oldest account, that of the newest, and the average age of all accounts. A higher score in “types of credit” can be achieved by having a mix of credit card, installment loan, and mortgage lines of credit. “New credit” scoring goes down if a borrower has a lot of recently opened accounts as it can indicate recent credit risk.

FICO scores range from 300 to 850. Scores from 670 to 739 are generally considered good. Buyers in the 580 to 669 range may be able to get a loan but have to settle for higher rates.

Below 580 is considered poor and indicates that you may be a risky borrower. But there are still available cars for bad credit buyers; you just have to find the right dealer.

FICO Score vs FICO Auto Score

Most people are familiar with FICO credit scores, but many do not know that there is a score specific to auto loans. The easiest way to understand this is that a FICO score indicates general risk, while a FICO auto score assesses creditworthiness specifically relative to an auto loan. Another way of saying this is that it looks at past behavior and assesses how likely you are to default on an auto loan if you were in a financial pinch.

A FICO auto score pulls information from up to 30 months of a borrower’s credit behavior. One obvious thing it looks at is past auto loans. Besides the overall utilization ratio, it looks at whether your balances have been increasing or decreasing. It also considers whether you have only been making the minimum monthly payment on each of your accounts.

Instead of 300 to 850, FICO auto scores range from 250 to 900. Many lenders consider 700 and up to be a good credit score.

A FICO auto score could be beneficial to someone who does not have a long credit history, has some debt, but rates as “low risk” in other categories. But it is difficult to know what type of credit report a lender will look at. The good news is that these results can let you know what types of financial behaviors to improve before your next personal loan request.

How a FICO Score Impacts Car Loans

According to Experian’s quarterly State of the Automotive Finance Market, last year the average new car loan interest rate was just under 4 percent. For used cars, the rate was only a little higher, at about 4.3 percent.

If you are looking for bad credit car finance options, one important thing to remember is that lenders take into account much more than FICO credit scores. Income and length of employment are two big ones. How much you plan to put down for the vehicle can have an impact as well.

Another thing to consider is the length of the term for which you are borrowing. A longer term means more credit risk for the lender. If you can afford the higher monthly repayment loan amounts, this could help in qualifying and keeping interest rates lower.

Also, if you don’t have your heart set on a new car and have a lower credit score, consider buying used. You can find good deals on bad credit used cars and be certain that you are getting the best auto financing for your circumstances.

Bad Credit Car Loans Near Me

Now that you have an idea of how your FICO scores work and how they impact bad credit car loans, you can begin the car-buying process. Take some time to consider all these variables, so that you can have the confidence that you will qualify for the loan you need for the vehicle you want.

At Autos 4 Less, we have been helping people in Tacoma, WA, and the surrounding areas find competitive car loans for more than 40 years. We work with more than 50 lenders to get you the best rates, regardless of your credit history.

We have an extensive inventory of pre-owned vehicles and staff that can help you find the best deal for your budget. Contact us today to get the ball rolling on your used car loan.