How Credit Scores Are Calculated
Credit scores are numerical summaries of your credit history, designed to predict how likely you are to repay debts. The most widely used scoring models are FICO and VantageScore, but they share common factors: payment history, amounts owed, length of credit history, new credit, and credit mix. Payment history and amounts owed carry the most weight in both models.
Understanding these factors is useful because they point to what you can influence. For example, making on-time payments and keeping credit card balances low relative to their limits are the two most effective levers for improving your score.
- Payment history: whether you've paid past accounts on time.
- Amounts owed: how much of your available credit you're using.
- Length of credit history: how long your accounts have been open.
- New credit: recent applications and newly opened accounts.
- Credit mix: the variety of credit types, such as installment loans and revolving cards.
Sources: Experian, Consumer Reports
Credit Score Ranges and Corresponding Rate Tiers
Lenders use credit score bands to categorize borrowers. Experian defines five tiers for auto loans: super prime (781–850), prime (661–780), near prime (601–660), subprime (501–600), and deep subprime (300–500). These tiers directly influence the interest rate you're offered.
The table below shows average new and used car loan interest rates for each tier, based on Experian data from the first quarter of 2026. Keep in mind that these are averages; your actual rate will depend on many factors, including the lender, loan term, and overall market conditions.
| Credit Score Tier | Credit Score Range | Average New Car Loan Rate | Average Used Car Loan Rate |
|---|---|---|---|
| Super prime | 781–850 | 4.55% APR | 6.30% APR |
| Prime | 661–780 | 6.49% APR | 8.64% APR |
| Near prime | 601–660 | 9.96% APR | 13.24% APR |
| Subprime | 501–600 | 14.34% APR | 18.20% APR |
| Deep subprime | 300–500 | 16.01% APR | 21.77% APR |
Sources: Experian
Credit Score on Approval
Your credit score not only affects the interest rate you're quoted, but also your chances of being approved and the lender types you can access. According to the Consumer Financial Protection Bureau, banks and credit unions that offer subprime auto loans tend to lend to borrowers with higher credit scores than finance companies and buy-here-pay-here dealerships. That means a borrower with a lower score may face a narrower set of options and higher rates.
The table below illustrates how the average interest rate on a subprime auto loan varies by lender type. It also shows the share of subprime loans that become seriously delinquent within three years, which reflects the higher risk lenders take on with lower-credit borrowers.
| Lender Type | Average Interest Rate | Share of Loans 60+ Days Delinquent Within 3 Years |
|---|---|---|
| Banks | About 10% | About 15% |
| Finance companies | 15% to 20% | 25% to 40% |
| Buy-here-pay-here dealerships | 15% to 20% | 25% to 40% |
Sources: Consumer Financial Protection Bureau
Steps to Improve Your Credit Score Before Applying
If you're planning to finance a car, taking a few months to improve your credit can save you a significant amount of money. Even a modest improvement from one tier to the next can lower your interest rate by a percentage point or more, which translates into hundreds of dollars less in interest over the life of the loan.
Focus on the factors that have the greatest impact: payment history and credit utilization. Avoid opening new credit accounts immediately before applying for a loan, as this can temporarily lower your score.
- Check your credit score and report to know where you stand.
- Make all payments on time; set up automatic payments or reminders.
- Pay down credit card balances to reduce utilization.
- Avoid applying for new credit in the months before your car loan application.
- Consider becoming an authorized user on a trusted person's account with a long, positive history, if appropriate.
Sources: Experian, Consumer Reports
How to Check Your Credit Report and Dispute Errors
Before applying for a car loan, it's wise to review your credit reports from the three major credit bureaus—Equifax, Experian, and TransUnion. You're entitled to a free copy of each report every 12 months from AnnualCreditReport.com. Look for any inaccuracies, such as a late payment that you actually made on time or an account that doesn't belong to you.
If you spot an error, you can dispute it with the credit bureau that issued the report. The bureau must investigate the dispute, typically within 30 days, and correct any information that is inaccurate or unverifiable. Removing even one erroneous negative item can sometimes boost your score enough to move you into a better rate tier.
- Get your free annual credit reports from AnnualCreditReport.com.
- Review each report for errors in personal information, account details, and payment status.
- File a dispute online or by mail with the specific credit bureau.
- Provide any supporting documents, such as bank statements or payment confirmations.
- Follow up to confirm the correction and re-check your score after the dispute is resolved.
Sources: Experian, Consumer Reports
Credit Score Considerations for First-Time Buyers
If you're buying a car for the first time, you may not have much credit history, which can make it harder to get a good rate. Lenders look for a pattern of responsible borrowing, and a short or thin credit file can be viewed as risk.
One option is to add a co-signer with a strong credit history. According to the CFPB, a borrower with a 560+ credit score would have the same default risk with a bank loan as with a small buy-here-pay-here loan, but the estimated interest rate would be 9% with the bank and 13% with the buy-here-pay-here lender. That difference could save about $900 over the life of the loan. A co-signer can help you qualify for a bank's lower rate, but the co-signer is legally responsible if you don't make payments, so both parties should understand the risks.
If you don't have a co-signer, consider building your credit first by getting a secured credit card or a small loan and making payments on time for several months. Even a short history of on-time payments can improve your score.
- A limited credit history may result in higher rates or denial without a co-signer.
- A co-signer with good credit can help you access lower bank rates.
- Building credit through a secured card or small installment loan can help.
- Check your credit score well before car shopping to know what to expect.
Sources: Consumer Financial Protection Bureau, Experian, Consumer Reports
Frequently asked questions
What is the minimum credit score to get a car loan?
There is no universal minimum, but lenders often set their own cutoffs. Experian's tiers show that even deep subprime scores (300–500) can obtain auto loans, though at high average rates—16.01% APR for new cars and 21.77% for used cars. However, according to the CFPB, banks and credit unions typically require higher scores than finance companies or buy-here-pay-here dealerships, so your options will be more limited with a low score.
Sources: Experian, Consumer Financial Protection BureauHow much can I save with a higher credit score?
The difference can be substantial. For example, a borrower with a credit score of 780 may pay thousands less over the life of a loan than someone with a score of 600, based on the rate difference between the super prime and subprime tiers.
Sources: ExperianShould I apply with a co-signer if my credit is low?
A co-signer can help you qualify for a lower rate. According to the CFPB, a borrower with a 560+ credit score might face about a 9% rate at a bank, compared to 13% at a buy-here-pay-here lender, assuming the same default risk. That difference could save roughly $900 over the life of the loan. However, the co-signer is equally responsible for the debt, and if you miss payments, it will hurt both your credit and theirs.
Sources: Consumer Financial Protection BureauHow long before buying a car should I check my credit?
It's a good idea to check your credit score and report at least a few months before you plan to apply. This gives you time to review your reports for errors, dispute any inaccuracies, and take steps to improve your score, such as paying down balances and making all payments on time.
Sources: ExperianDoes checking my credit score lower it?
Checking your own credit score or pulling your credit report does not affect your score. These are considered soft inquiries and have no impact. Only hard inquiries, which occur when a lender checks your credit as part of a loan application, can have a small and temporary effect.
Sources: Experian, Consumer ReportsSources
- Average Car Loan Interest Rates by Credit Score - Experian — Experian
- Comparing auto loans for borrowers with subprime credit scores — Consumer Financial Protection Bureau
- Data Point: Subprime Auto Loan Outcomes by Lender Type — Consumer Financial Protection Bureau
- How Your Credit Score Affects Auto Loan Interest Rates — Consumer Reports