How Your Credit Score Impacts Getting A Car

If you spend any amount of time watching TV or listening to the radio, you’ve probably encountered ads urging you to check your credit score. If you’re a younger person, you may disregard those ads because you believe credit scores only concerns Credit scores older adults.

However, that couldn’t be further from the truth. It’s never to soon to think about your credit score or build up a good credit history. Because your credit impacts a number of things, especially future large purchases, you need to regularly think about it as an adult.

What is a credit score?

According to CreditKarma, a credit score is a three-digit number representing your likelihood to repay debt. Banks and lenders use your credit score to decide if they’ll approve you for a credit card or loan. The following factors typically influence your credit score:

  • Payment history: Your account payment information, including any late payments or outstanding balances.
  • Amounts owed: How much you owe on any accounts or loans.
  • Length of credit history: How long ago you opened the account and recent activity. For example, when was the last time you used a credit card? Or made a payment?
  • Types of credit used: Do you have credit cards? Or student loans? If you do, they will be taken into account.
  • New credit: This could be any new credit cards you’ve opened or bills that you have in your name, like an electric or phone bill.

Personal or demographic information like age, race, address, income and employment don’t have any impact on your credit score.

Who determines your credit score?

There are three main organizations who assign credit scores and create credit reports: Equifax, Experian, and TransUnion. Each organization uses slighty different models using different factors when they determine your score. There is one model, however, that is used the most: the FICO credit score. According to, 90 percent of all financial institutions in the US use FICO scores in their decision-making process.

Lenders usually divide credit scores into tiers, or categories. One common ranking of scores is Excellent, Good, Fair, Poor, and Bad.
Want to check your credit score and learn more about your credit? Here are some free tools that can help!

How Your Credit Score Impacts Vehicle Financing

As you’ve learned, your credit score is a calculation of how likely you are to repay debts and loans. The higher your score, the more likely you are to repay loans. If a lending institution feels that you are more likely to repay a loan, it will typically charge you a  lower interest rate on a loan.

If you are looking to finance a vehicle, it’s important to know that lending institutions may use models with “auto-enhanced” or “auto industry” variables when determining your interest rate. This means that it looks at things like whether you make car payments and if you have ever defaulted on a car loan. Lending institutions give these items more weight when calculating your interest rate and credit score for vehicle financing.

While auto-related credit items carry more weight when it comes to financing a vehicle, it’s still important to develop good habits for managing your credit.

Easy Ways to Improve Your Credit

If you are just starting out, here are some easy things you can do to build up your credit history and improve your credit score:

  • Sign up for automatic payments where the amount owed is take right from your checking account.
  • Don’t max out your credit cards. Try to keep your balance below 20% of the card’s limit.
  • Don’t close credit card accounts you aren’t using. Unused credit is good for your long-term record.
  • Pay your bills on time. If you make 6 months of payments on-time, you will to see a noticeable difference in your credit score.

If you have less-than-perfect credit and think you’ll struggle to finance a car through a bank, keep Car City in mind. We have one of the largest selections of reliable used cars in Michigan and Indiana, and you can drive away for only $39 down.
 Browse our inventory and get approved today!

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