What is a Credit Score?
Credit scores range between 300 to 850. The higher your score, the better - with the average score being 723. Anything above 750 will usually qualify you for the best auto financing rates.
Anything below 640 is usually considered sub-prime, which means you'll get charged a higher interest rate to compensate for the risk.
If your credit score is below 550, it becomes very difficult to even qualify for a car loan. Your best bet in this situation is to wait a few months and work on fixing your credit score - it will save you literally thousands of dollars when taking out a loan.
You can check to see what your credit score is at FreeCreditScore.com
Where Does Your Credit Score Come From?
There are several different ways to calculate a credit score, but nearly all lenders use a method created by Fair Isaac Co. called the FICO score.
The three largest credit bureaus in the U.S. (TransUnion, Equifax and Experian) use the FICO method to calculate credit scores. To keep things simple, whenever I say credit score, I'm basically referring to the FICO score.
Your credit score is generated by an algorithm that uses information from your credit report including your payment history, amounts that you owe, length of credit history, and other factors.
Remember - a credit score is not the same thing as a credit report. Your credit score is simply a number that is used to represent the information found in your credit report. It's an easy way for lenders to grade your credit report.
The three major credit bureaus keep a separate credit report on file for you. They may each be a little different depending on which sources they use to get the information and whether there are any mistakes.
The credit score is meant to predict the likelihood of whether or not you will be 90 days past due on a loan within 24 months.
Consumers are entitled to one free credit report every 12 months from each of the three credit bureaus. You can get yours at AnnualCreditReport.com.
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- Gregg Fidan
Each week, I'll keep you up-to-date on the latest car deals and news that might affect your purchase. This includes...
- Best Rebates, Incentives, and Lease Deals
- Latest Car Buying Scams and Tricks
- The Best & Worst Time to Buy a Car
- Which Cars You Should Avoid