Auto lenders use your credit score to determine not only loan eligibility, but other important factors including interest rates, loan terms, and monthly payment amounts. The credit score you need to qualify for an auto loan—much like the minimum credit score you need for a mortgage or any other loan—is up to the lender. Lenders set different eligibility requirements depending on their willingness to accept risk, and their minimum credit score requirements also may vary depending on the size of the loan you're seeking and, perhaps, the type of vehicle you plan to finance.
Having a car loan can build credit in two important ways: payment history and credit mix.
If you’re concerned about approval, prepare by focusing on the positives in your financial life. Remember, people with major blemishes on their credit are routinely approved for car loans. If you worry that your credit score could keep you from buying a car, you underestimate how much Bill Dube Ford Toyota wants to sell you one.
Does a Credit Check Hurt My Credit Score?
One kind of credit check will impact your credit score. The other won’t. There’s a common misconception that any credit check lowers your credit score and hurts your ability to get approved for loans and new lines of credit, but this is only sometimes true. There are two types of credit checks—hard and soft inquiries—and which one an account manager performs depends on what the information is being used for. Hard inquiries can hurt your score, while soft inquiries don’t make any difference.
What is a soft credit inquiry?
Does a credit check automatically hurt your credit score? A soft inquiry (or soft pull) occurs when your credit report is not being used to make a lending decision. A soft inquiry will not be logged as a new credit line application, so it doesn’t impact credit score. When you check your own credit report, this is a soft inquiry as well. Another common example is a credit inquiry that’s part of a pre-employment background check. It doesn’t matter how many soft inquiries you have because they don’t show up on your credit report and they don’t impact your credit score at all.
What is a hard credit inquiry?
Hard inquiries (or hard pulls) are the credit checks that lenders conduct when they’re making a lending decision about you. When you apply for a mortgage, car loan, credit card, or even a home rental, the lender runs a hard credit check.
Take Control of Your Credit Report
Check your credit report at least once per year to ensure that your information is accurate. Your credit report contains information on all of your credit accounts, and lenders will use the data to assess your financial responsibility. Your report is also what determines your credit score, so you want to make sure there aren’t any mistakes.