How Does Credit Impact a Car Loan?

Get Car Financing
Even with poor credit.

By

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - May 4, 2018

Borrowers dealing with bad credit typically have to apply with a subprime lender to take out an auto loan. These lenders look beyond credit scores to see what’s really going on with your situation, but what exactly are they looking at?

What’s in Your Credit Score?

FICO is the most common credit scoring model used for auto lending. A FICO credit score is made up of five factors that each carries a certain weight. Lenders look at these factors to determine how responsible a borrower is and has been with credit, which helps them determine how risky it is to lend them money.

The five factors that make up a FICO score are:

  • Payment History – 35%: Shows how debts have been repaid. This section shows both revolving credit, such as credit cards, and installment loans, such as auto financing.
  • Amounts Owed – 30%: Deals with credit utilization, which is how much revolving credit is currently being used. To find this, add up all credit card balances, and divide the sum by total credit limits. Lenders like to see a credit utilization ratio of 30 percent or lower.
  • Length of Credit History – 15%: Shows how long a borrower has been using credit.
  • Credit Mix – 10%: Credit mix shows lenders if and how borrowers have handled different types of credit, such as installment loans, credit cards, and store accounts.
  • New Credit – 10%: It can be a red flag for lenders when they see a lot of new lines of credit being applied for all at once. It’s best to only apply for credit only when necessary.

Credit is typically looked at by lenders in credit ranges. FICO credit scores range from 300 to 850, and are broken down into ranges from excellent to poor. So, what is a good credit score? According to FICO, anything above 700 is considered good credit. Bad credit doesn’t actually begin until scores dip below 600 to 550, depending on the lender.

Why is it Important to Know about FICO Scores?

When a borrower knows where their credit stands, it helps them prepare by researching common rates and terms using online tools and estimators. It also helps avoid surprises at the dealership.

There are plenty of ways for a borrower to check their credit before starting the car buying process, such as free services like Discover Credit Scorecard or Credit Karma, or borrowers can check to see if any of their credit card providers offer free credit monitoring programs.

Lenders typically use borrowers' auto-enhanced credit scores, but these can be difficult to get as a consumer. This version of a borrower’s FICO score may be available for purchase.

Credit is More than Just a Score

For a borrower to have the most complete picture of their credit situation, they should make sure to know what’s in their credit reports in addition to their credit score. All borrowers are entitled to a free copy of their credit report every 12 months from each of the three national bureaus – Experian, TransUnion, and Equifax. Monitoring these can help a borrower ensure their credit stays in peak health.

Bottom Line

Keeping an eye on your credit is one of the best ways to be prepared for your car buying experience and knowing if you might need a bad credit auto loan. When you know what the lenders are looking for, you can prepare to get the best rates and terms by visiting the right lenders.

Here at CarsDirect, we know that not all dealers work with the lenders that can help you get a loan even if your credit is less than perfect. We work with dealerships all across the country that have the lenders that work with bad credit, no credit, and even bankruptcy. Hop on over to our fast free auto loan request form to get started now!

Need a Car Loan?

It only takes a minute.

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Policy|Terms of Use|Cookie Policy|Disclaimer
COPYRIGHT 1999-2019 MH Sub I, LLC dba CarsDirect.com