Check Your Buying Power

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.

• Payment history is your track record of paying bills on time. It accounts for more of your credit score than any other single factor. Traditional lenders report your payments to the three major credit bureaus, which provide the data to calculate your credit scores. (Note: Buy-here, pay-here lenders often do not report payments to credit bureaus. These loans not only tend to have high interest rates, they also won’t help you build credit if payments aren’t reported.)
• Credit mix means whether you have both installment loans (with equal payments over a set period) and revolving credit (variable payments and no set end date, as with credit cards). If you have mostly — or only — credit cards, adding a car loan may help your score a bit.

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.

Frequently Asked Questions

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.