How Your FICO Score Can Affect A New Car Purchase


Money and car keysWhen it comes time to buy a new car, you probably already know you should have good credit and that you should check your credit report before making a new car purchase. But what many consumers aren’t clear about is the relationship between what’s on their credit report and their overall credit score, or FICO, and how their credit score plays into what type of rates they’re charged to finance a vehicle or to get the most attractive lease terms.

Simply put, a credit report is the raw data from which the credit score is calculated. Since your FICO is based on information contained in the credit report, financial experts recommend checking your credit report well in advance of applying for a major loan and correcting any inaccuracies and other information that could harm your score.

If you have excellent credit, check the credit reports a couple of months before attempting to buy a car. If your credit is not so good or poor, check six months in advance to see if there’s anything you can do to improve your credit score. This includes paying off any collection accounts and outstanding large balances.

How is FICO calculated?

To determine your FICO, the company uses a proprietary formula, which they won’t reveal. They apply the formula to the information contained in the credit report. The FICO score breaks down into five areas, as follows: payment history (35 percent); amounts owed (30 percent); length of credit history (16 percent); new credit (10 percent), and types of credit used (10 percent).

Why does the FICO score matter?

There are three main reasons to pay attention to the FICO score. First, it’s the industry standard, used in more than 90 percent of lending decisions in the U.S. Second, the FICO score determines how much money you can borrow and how much interest you’ll pay. Third, a strong FICO score gives consumers access to the best interest rates, loans, rebates and premium credit cards.

What factors impact FICO score?

Basically, a consumer’s financial behavior patterns are reflected in the credit report, which, in turn, impacts how low or high the resulting FICO score will be. According to FICO, an excellent FICO score is 720 to 850 points. A good credit score is 680 to 720. A fair credit score is 620 to 680. A poor credit score is 350 to 640. A credit score of 000 to 349 is categorized as “no credit.”

There are five common things that will negatively impact a 680 (good) score and a 780 (excellent) score with the range of points deductions indicated.


Effect on 680 score

Effect on 780 score

Maxed-out credit card

-10 to -30

-25 to -45

30 day late payment

-60 to -80

-90 to -110

Debt settlement

-45 to -65

-105 to -125

Foreclosure or short sale

-85 to -105

-140 to -160


-130 to -150

-220 to -240



How do credit scores affect auto loan rates?

The various scenarios for consumers with excellent, good, average, poor and bad credit scores are fairly straightforward. Those with higher credit scores get the best rates. Here’s how it breaks down:

  • Excellent credit score – Consumers with scores in the 720 and up range get the best interest rates and loan repayment terms, hands down.
  • Good credit score – Those with scores 680 and up are in good shape, able to land decent terms from auto lenders, although not as good as those with excellent credit.
  • Fair credit score – While a score in this range is considered the absolute minimum, consumers are still able to get financing on smaller-ticket items, including a car. Experts say a better course of action is to do what you can to improve your credit score before shopping for a new vehicle.
  • Poor credit score – Scores in the 350 to 640 range are considered the lowest “workable” range for auto financing. Consumers can still get loans, but they’ll be on lender’s terms, resulting in higher interest rates and added finance charges. A 36-month auto loan, for example, will carry about double the interest rate offered to consumers with good credit.

36-month auto loan rate comparison by FICO credit score

Looking at specifics, how do the various FICO scores impact what a consumer will pay for a 36-month auto loan of $25,000?

FICO score


Monthly payment



















Source: Informa Research Services (interest rates as of Jan.10, 2014)

Bottom line: If you’re planning to make a new car purchase, obtain copies of credit reports from the three credit reporting agencies (Equifax, Experian and TransUnion), pay extra to get your credit score, and do what’s necessary to boost your credit score to good or excellent in order to get the best auto loan terms and interest rates.


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