Buying a car, whether new or used, can be expensive.
Car loans help you break up the price into more manageable payments. It’s a simple and effective way to get the vehicle you want.
As with many other loans, your credit score will influence any car loan you apply for. In general, a higher score makes it easier to qualify. Additionally, a high credit score may make lower interest rates and better loan terms more accessible.
Let’s take a closer look at credit scores in general and how to improve them. Then, we’ll dive deeper into the specifics of credit scores and getting a car loan.
Why is My Credit Score Important?
Credit scores are three-digit numbers that summarize your credit report. Your credit report is a file that contains a variety of information about how you use credit. It tracks things like outstanding debt, payment history, and the types of credit you use.
The Financial Consumer Agency of Canada (FCAC) explains this in more depth. “[A credit score] shows how well you manage credit and how risky it would be for a lender to lend you money.”
These reports are valuable to lenders because they help to demonstrate creditworthiness. In other words, they help to indicate the relative risk of offering a loan, like a car loan. However, they’re often large files full of detailed data.
Your credit score takes all that information and turns it into an easily understood number. By using the same reference point for all potential borrowers, lenders can streamline the loan process.
Who Calculates My Credit Score?
In Canada, two credit bureaus are the source of credit reports and credit scores. Specifically, these are Equifax Canada and TransUnion Canada. These organizations only collect financial information related to financial experiences in Canada.
How to Check Your Credit Score and Credit Report
FCAC offers detailed instructions for accessing your credit score and credit report. It’s a good idea to regularly review your report and get in touch with credit bureaus to dispute any errors.
Credit Score Ranges in Canada
Credit scores in Canada range from 300 on the low end to a maximum of 900. Individual scores are grouped into bands that indicate creditworthiness.
Credit scoring models and differences between the bureaus mean there isn’t one universal ranking of scores. However, this general credit score range shared by Equifax can help:
- Poor credit: Under 580
- Fair credit: 580-699
- Good credit: 670-739
- Very good credit: 740-799
- Excellent credit: 800 and above
Is There a Minimum Credit Score for Car Financing?
Believe it or not, there’s more than one answer to this question.
Do you need a certain credit score to get any kind of car loan? Will you be automatically denied by all lenders if your score is below a specific number? The answer is no. There’s no universal minimum score that acts as a cut-off point for car loans.
However, there is a minimum credit score that generally indicates strong creditworthiness and low risk to lenders. This number can vary slightly depending on the source, but it lands somewhere in the 630-660 range. That’s toward the high end of the “fair credit” band.
The higher your credit score, the easier the car loan process becomes. Receiving approval can be simple and fast, especially if you use dealer financing where you can be approved for an Innovation car loan right at your preferred dealership.
You can still find a car loan with a lower credit score. It may mean paying more interest over time. You might also have to spend more time looking to find a lender who will work with you.
In short, a better credit score often means saving money on interest and taking advantage of better terms and conditions. Improving your credit score can make a big difference.
While boosting your credit score takes time and effort, that investment is often worth it. Wondering where to start? Check out these five practical tips for improving your credit score.