The answer is quite a bit. If you’re planning on buying a car straight up with cash, then your credit doesn’t particularly matter, but this is a rare occurrence today as most people finance their cars. The economy isn’t great, and most people don’t have the liquidity to drop $20,000 at once. This is where your credit score comes into play.
The FICO Score
There are multiple credit rating agencies, but the majority of car dealers are specifically looking at your FICO score. Based on your credit, you get assigned a number between 300 and 850, with 300 the worst and 850 the best. This number is based on all sorts of financial transactions from student loans, credit cards, and home loans. You are allowed to get a free credit report from each agency once a year and can purchase more if needed.
Bad Credit and the Car Buying Experience
Both new and used car dealers are typically looking to finance people who have a score of 700 or higher. This doesn’t mean they won’t finance someone with a lower score, but in their eyes you are less reliable and riskier. You’re not going to qualify for those deal-breaking APRs, and will be looking at some very high interest rates. Of course, the long-term benefit is if you successfully pay off your auto loan, then your credit score will greatly improve, making any financing in the future much easier.
Other Factors to Consider
Credit is a major player in securing a low financing rate, but there are a few other factors that may help. The dealership or financing company will take a look at your present income, how large of a down payment you can make, and your trade-in, so the amount of money they have to lend is lower and less risky.
Another thing you can do is try to establish a relationship with a dealership. Dealerships like to have reliable, lifetime customers. If they see you come down every couple of years and haven’t been a problem in the past, then they’re probably going to let you negotiate for those lower rates. Any little bit helps in the credit score game.
April 23, 2013 by Jamie Rettig