What Kind of a Credit Score Should I Have For a Car Loan?

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What Kind of a Credit Score Should I Have For a Car Loan?

In the market for a new or used car? Have you already picked out the perfect car for you? Before you head off to the dealership and sign on the dotted line let me ask you a question, have you checked your credit scores? If not, then close the Auto Trader and Carmax websites and read the rest of this article. It could save you $15,801.

No matter how many television commercials we see or reports from the FTC come out, most people are not aware of what their credit scores are, how they are determined, or what it takes to get the highest scores.

FICO credit scores range from 300 to 850. 300 is the worst possible score and 850 is the best possible score. If you want to know what kind of a credit score should you have for a car loan, the higher the number the better. And the lower your car payment will be and the more car you will be able to afford.

Let me just show you some hypothetical numbers real quick on a $20,000 car loan financed over five years or 60 months.

$359.37 a month at 3% - Good Credit - 700 to 850 FICOs
$425.97 a month at 10% - Ok Credit - 600 to 699 FICOs
$622.72 a month at 28% - Bad Credit - 300 to 599 FICOs

This shows you what your monthly car payment could be if you finance at the different APR's. Which monthly payment to you want to pay? Which monthly payment can you afford? These numbers are just examples but they give you an idea of what it could be looking at.

The difference between the worst credit and the best credit is $263.35 a month. Over 60 months, that adds up to $15,801.

So instead of your car costing $20,000, it ends up costing you almost $36,000 after you are done paying it off. And it may only be worth $5000 to top it off.

If you find yourself in the lower score range here is how you can improve your credit scores: do your best to not miss any more payments (your payment history is very important), reduce how much you currently owe as much as possible, keep your old accounts open, and do not apply for new loans often. Those are the major factors that can provide a positive boost to your scores.

So what kind of credit scores should you have for a car loan? The higher the better. And you get a lower interest rate with a lower monthly payment and keep more money in your pocket each month. Your next step is to get all three credit scores absolutely free to see where you stand.