What Credit Score is Needed for a Car Loan?
Buying a car isn’t necessarily rocket science, but it isn’t a walk in the park either.
You have to take care of a number of important tasks before you get to sign on the dotted line. Some of these tasks include researching different vehicles and comparing auto insurance quotes.
Additionally, if you’re taking out a loan for your new vehicle, you may need to work on your credit score. If it's your first time purchasing a vehicle, you’re probably asking yourself, “what credit score is needed for a car loan in Canada?”.
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What is a credit score?
A credit score is a numerical expression that indicates the overall strength of your credit. In other words, your credit score is used to determine how trustworthy you are as a lendee. Higher credit scores indicate that you’re a reliable lendee, whereas lower credit scores indicate that you’re less reliable.
In Canada, credit scores are broken down into five different categories:
- Poor — 300 to 559
- Fair — 560 to 659
- Good — 660 to 724
- Very good — 725 to 759
- Excellent — 760 to 900
You can check your credit score by speaking with a specialist at your local bank or by downloading an app on your smartphone.
Now that you know what a credit score is, it’s time to dive into today’s question, “what credit score is needed for a car loan?”.
Find out below:
What credit score is needed for a car loan in Canada?
If you have to take out a loan for a new car, you should take a moment to check your credit score beforehand.
Most people think that you need to have a “good”, “very good” or “excellent” credit score to buy a car (a score of 660 to 900).
Although you don’t need to have good (or better) credit to get a car, it certainly helps. If you have a score of 660 (or better), you have a much better chance of qualifying for a loan with lower interest rates and also allows you to take advantage of lower monthly car payments.
So, if you need to take a loan out for a new car, it doesn’t hurt if you have a strong credit score.
But what if you have a weak credit score?
What is the minimum credit score to buy a car in Canada?
Is your credit categorized as “poor” or “fair”? Don’t worry! There’s a good chance that you can still get a car loan for a new car.
There are numerous lenders that can help you find that you need to purchase a new vehicle, even if you have a “poor” or “fair” credit score (please note that these loans will likely have higher interest rates).
So, if you’ve been wondering, “how much credit is required for a car loan?”, you now know that there’s no clear-cut answer. Having a “good” (or better) score can help you get the best rates, but you can potentially find a lender with a lower credit score if you’re willing to pay a little bit more down the line.
Use your car loan to improve your credit score
Did you know that you can use your car loan to improve your credit score? It’s true!
All that you need to do is make sure that you make all of your car payments on time. Your payment history plays a huge role in determining your credit score (approximately 35%).
So, if you make timely payments, you can gradually start to see an improvement in your credit score. It may take a few months, but your credit score should increase by a noticeable amount.
But, making timely payments isn’t the only thing that you can do to build up your current credit score…
How to build your credit score
Are you trying to build your credit score for a car loan? You’re not alone!
That’s why we’ve put together the following list of tips and tricks. Before long, you’ll start to improve your credit score:
- Keep a close eye on your payment history
- Never exceed your credit limit (aim for a maximum of 35%)
- Build your credit history
- Don’t open new credit accounts too often
- Don’t check your credit score too often (this is a red flag for lenders)
- Make use of various types of credit (credit card, line of credit, etc.)
- Let your lender and credit card companies know when you change your address (to avoid missing bills that come via mail)
Does your credit score influence your car insurance rates in Canada?
In some cases, yes, your credit score can affect your car insurance, but it depends on where you live. In certain provinces, like Alberta, car insurance companies use credit scores as a tool for determining the risk level of a policyholder. In theory, the lower your credit score is, the more likely you are to miss a car insurance payment.
However, not all car insurance companies will use your credit score as a factor while calculating your rates. For instance, in Ontario, your credit score does not have any bearing on your car insurance rates. This is something that you should keep in mind while comparing car insurance quotes in Canada.
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