What you need to know about credit when financing a vehicle

It should be no surprise.

Lenders provide more financing to borrowers with higher credit scores.

More than half the money loaned in March went to so-called super-prime borrowers – those with credit scores of 720 or above – based on data from the Consumer Financial Protection Bureau (CFPB) website. And more than 40 percent of the rest went to borrowers with prime scores, between 660 and 719.

That means borrowers with scores below 660 are chasing less than one-third of available credit – around $15 billion in March – for their vehicle purchases.


Knowing your credit score and details of your credit report before shopping for a vehicle will help you see how lenders view you relative to other borrowers, including how you manage your financial responsibilities and debt associated with your credit score.

Your credit score may not be the only factor to determine whether you receive a loan, how much financing you receive and what interest rate you pay, but it should help you have realistic expectations.

Santander Consumer USA uses a FICO (credit) score plus other sources to determine vehicle financing.

“FICO Scores are calculated from many different pieces of credit data in your credit report … both positive and negative information,” according to Fair Isaac Corporation, which calculates the scores. “Late payments will lower your FICO Scores, but establishing or re-establishing a good track record of making payments on time will raise your score.”

Generally, the scores are based on the following factors: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit and credit mix (10 percent each).

The importance of these five categories varies by person seeking financing.

“For example, people who have not been using credit long will be factored differently than those with a longer credit history … The importance of any one factor in your credit score calculation depends on the overall information in your credit report,” Fair Isaac says on its website. “In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO Scores.”

FICO explains that “it’s impossible to measure the exact impact of a single factor in how your credit score is calculated without looking at your entire report.”

All of this underscores the importance of checking your credit reports from the three major credit bureaus – TransUnion, Equifax and Experian – at least annually so you can request corrections if any information they contain is incorrect or has changed significantly, and to see where you may need to improve your credit performance before you seek financing.

Look for more about checking your credit report in our next “Know Before You Owe” installment.