If you’re planning on buying a car in the near future, our credit counseling advice is to make sure you have a good credit score. But what exactly is a good credit score to buy a car? How can you make sure you get the best interest rate on an auto loan? Here is some basic information you should know about credit scores and buying a car:
Good Credit Score for Buying a Car
If your credit score is 750 or higher, the interest rates you can expect on an auto loan will be as low as 3-4 percent. On the other end of the spectrum, if your credit score is 600 or lower, your interest rates will likely be very high. They could be anywhere from 12 percent to nearly 20 percent!
You should also consider that for a new car, you may need a higher credit score than if you are buying a used car. Also, keep in mind that the interest rates for used cars are typically higher than loans for new cars.
How to Improve Your Credit
Maybe your credit score isn’t quite where it needs to be to get a good interest rate. How can you improve your credit score? The most important factor that is considered in determining your credit score is payment history. The best thing you can do is make on-time payments on your credit cards every month. Try to pay them off in full every month, or at least as much as you can. Additionally, keep your credit utilization under 30%. Basically, if you have $1,000 of available credit, don’t use more than $300. Finally, don’t open any new credit accounts that you don’t need. Any time you apply for new credit, a hard inquiry will appear on your credit report, which can lower your score.
It may take a few months, but if you follow that advice, you should be well on your way to getting a good credit score to buy a car!
Other Tips for Buying a Car
Save up as much as you can for the down payment. The larger the down payment, the lower your monthly car payment will be. Also, before you buy a car, figure out how much you can reasonably afford to pay every month for your auto expenses. These include your car payment, gas, insurance, and any maintenance. Ideally, you should not spend more than 20% of your income on transportation. If the car payment alone is going to be at or near 20% of your income, you should probably look for a more affordable car. Finally, get quotes from multiple lenders so you can find the best deal on your auto loan.
If you struggle to pay off debt, ACCC can help. Schedule a free credit counseling session with us today!