Thinking about buying a new car? It's common for many people to use an auto loan to help finance this type of purchase. Just over one-third of Americans utilize a car loan to purchase the vehicle of their choice, according to the Federal Reserve. However, to secure a loan, your lender is going to want to look at your credit score. In this article, Kraft Nissan in Tallahassee, FL will tell you more about what your credit score is, the different scoring systems out there, and what things your dealership may look at when determining your creditworthiness.

What Is a Reasonable Credit Score to Buy a Car?

Your credit score is a three-digit number that reflects your overall consumer behavior as complied on your credit report. There's quite a bit of information in this report, but the most impactful factors include your:

• Payment history — your percentage of on-time payments.
• Credit utilization — how much credit you're using vs. total available amount.
• Derogatory marks — any collections, bankruptcies, or other public records on your report.
• Length of credit history — the average age of your open accounts.
• Hard inquiries — the number of instances that you've requested credit.

Paying your bills in full and on time and not overspending are two of the biggest factors that can help to increase your credit score. Although having a credit score that's considered “fair” or higher (≥650) may broaden your financing options, getting a car loan is still possible for those with “poor” or “bad” credit (550≤).

What Credit Scores Do Car Lenders Look At?

Equifax, TransUnion, and Experian are the three major credit reporting agencies in the United States. Each of these companies keeps their own credit report on you and gives you a credit score based on this data. Additionally, there are “credit-scoring models” that take this same information but calculate your score differently based on various criteria. The two main credit-scoring models are Fair Isaac Corporation (FICO) and VantageScore.

Among the top lenders in the United States, 90% of them use FICO scores as a part of their decision-making processes. This makes it highly likely that your FICO score will be used to help lenders determine whether to extend credit to you. To give lenders further clarity, the FICO scoring model also provides 28 industry-specific scores. One of these scores deals with auto loans and is fittingly called the FICO Auto Score.

FICO Auto Scores range from 250 to 900 and similar factors (credit utilization, payment history, etc.) will have an impact on your score. However, there are some differences. For example, the FICO Auto Score will give more weight to any previous car loan payments you've made over other types of payments in your overall history. This may cause your FICO Auto Score to be higher or lower than your regular credit score. It's wise to check your score in preparation for purchasing a vehicle.

What Do Car Dealerships Look for When Making Credit Decisions?

Along with reviewing your credit score, your car dealer will weigh other factors when making decisions regarding vehicle financing options. Although the credit process can seem intimidating at times, remember that your lender just wants to clarify that you're a responsible person who can be trusted to pay back your debts, if you have the means to do so. Your monthly rent and how stable your employment is are examples of the kinds of information they may consider during this process.

Remember that the two biggest factors that make up your credit score are your payment history and how responsible you've been with credit already extended to you (credit utilization). If you are missing payments, not paying for long periods at a time (>30 days), or using up most of the credit you already have, these can be potential red flags. Additionally, if you have any recent outstanding debts that have gone to collections or recent bankruptcies, these records can have a negative effect on you as well.

Tips for Improving Your Chances of Being Approved for Credit

Don't forget that if your credit history isn't as good as you want or think it should be, you may still be able to obtain a car loan to purchase a vehicle. However, the better your credit score is, the better the terms may be on securing a financing offer. So, what do you do if you check your score and it's not ideal?

First, make sure that the information listed in your credit record is accurate. If there are any discrepancies, contact the appropriate credit agency and file a dispute to correct any errors found in your report. Second, make sure that you've paid off any outstanding debts and are up to date on payments if you've fallen behind. Debts that have gone to collections can remain on your credit report for up to seven years.

Another aspect to pay attention to is your credit utilization rate, so you don't give the appearance of someone who is overspending. As much as possible, try to make sure your utilization rate is under 30%. For optimum results, try getting it under 10%. This means if your overall credit limit is $20,000, don't use more than $2,000.

These are just a few tips our friendly and knowledgeable team here at Kraft Nissan would like to share with you. If you have more questions, feel free to contact us or stop by our dealership here in Tallahassee. As one of the longest-running car dealerships in North Florida, we've been helping people with all levels of credit discover the financing options available to them.

Our helpful financial department would be pleased to assist you through the journey of getting loan approval, including advising you on the application process and the documentation you'll need. You can even apply for financing online and we'll reach out with a personalized plan just for you. If you're ready to join the Kraft family of satisfied buyers, you can get started today using our Shop-at-Home program and do it all from the comfort of your own home.