Understanding Credit Scores & Auto Loan Rates

Your credit score is one of the biggest factors lenders consider during your auto loan application process. Just a few points on your credit score can affect the interest rate you are offered and, ultimately, the total cost of borrowing to purchase your car.

Let’s break down how your credit score influences auto financing and how Upgrade can help you save money and strengthen your credit score over time.

What Is a Credit Score, and Why Does It Matter for Car Loans?

Your credit score is a three-digit number that reflects how likely you are to repay borrowed money. It’s based on factors like your payment history, how much credit you’re using, the age of your accounts, and recent credit inquiries. Auto lenders use that number to quickly assess risk. A higher score may mean lower perceived risk, which can translate to more attractive loan offers and better interest rates. On the other hand, a lower score may mean higher perceived risk, which can translate to less attractive interest rates.

Most lenders use FICO® Auto Score or VantageScore, both of which consider your past payment behavior and credit utilization.

Tip: You can check your credit score for free without impacting your credit with a free Upgrade Credit Health monitoring account.

How Your Credit Score Impacts Auto Loan Approval

When you apply for an auto loan, your credit score helps lenders answer one big question: Can this person reliably make payments?

Here’s how your credit score plays into approval:

1. Minimum credit score thresholds: Many lenders have a minimum required credit score for applicants that they will consider.
2. Better credit scores typically means more options: With a higher credit score, you’ll likely qualify with more lenders and have more flexibility on loan terms and vehicle choice.
3. Auto-specific credit scores: Some lenders look at “auto-enhanced” versions of your credit score, which weigh past car loan performance more heavily.
4. Compensating factors: Even if your credit score isn’t ideal, lenders also consider your income, debt-to-income ratio, and down payment amount.

The Real Cost: How Credit Scores Affect Auto Loan Rates

Typically, the higher your credit score, the lower your interest rates will be. Here’s how average rates look by credit tier, based on recent Experian data. Keep in mind that your actual rate will vary based on your credit score and other factors.

Based on the data above, a borrower with a credit score of 780 may pay thousands less over the life of their loan term compared to someone with a 600 score.

Auto Refinance through Upgrade: If your credit score has improved since you bought your car, refinancing your loan might save you money. Getting an auto refinance loan through Upgrade can help you save on interest or lower your monthly car payment. Get started by seeing if you qualify now.

How Your Credit Score Shapes Loan Terms

Beyond interest rates, your score can affect:

• Loan length: Borrowers with stronger credit scores may qualify for longer loan repayment terms.
• Down payment requirements: Borrowers with lower credit scores are typically required to make larger down payments than borrowers with higher credit scores.
• Fees: Some lenders charge higher origination fees or require add-ons for subprime borrowers.

Keeping your credit score in good shape can help you unlock lower interest rates, more flexible loan terms, and better overall deals. 

How to Strengthen Your Credit Score Before Applying

You don’t need to wait years to boost your credit score. Small, consistent actions can make a noticeable difference in a few months. Get started with these 5 steps:

1. Pay bills on time: Your payment history makes up about 35% of your credit score, so making on-time payments can help you build your credit score.
2. Keep credit utilization low: Aim to use less than 30% of your available credit, but the lower the better.
3. Avoid new hard inquiries: Applying for new credit cards and loans can result in hard inquiries, which can lower your credit score.
4. Dispute errors on your credit report: Check your credit report with all three bureaus atAnnualCreditReport.com and take these steps to fix an error.
5. Diversify your credit mix: A combination of revolving and installment credit can improve your credit score.

Tip: If you’re carrying high-interest debt, a credit card refinance or debt consolidation loan through Upgrade could potentially lower your monthly payments. Paying off credit cards can also improve your credit utilization ratio, which may raise your credit score over time.

How Auto Loans Affect Your Credit Score

Your car loan itself becomes part of your credit history. It can either help or hurt your credit score depending on how you manage it. Here are a few things to keep in mind:

• On-time payments can help improve your credit score
• Missed or late payments can hurt your credit score
• Paying down a loan balance can improve your credit score

Over time, a well-managed auto loan can help you strengthen your credit profile, setting you up for lower rates on future loans or credit cards.

FAQs About Credit Scores and Auto Loans

What credit score do I need to qualify for a car loan? It depends on the lender, but you can typically qualify with a fair credit score. You may just see higher interest rates or need a co-signer.

Does checking my credit lower my score? Soft inquiries (like pre-qualifications) don’t affect your score. Only “hard” inquiries from formal applications have a small impact. Learn more about the difference between the two.

Can I refinance my car loan if my credit score improves? Yes! If your credit score has gone up or market rates have dropped, refinancing could help you lower your monthly payment and reduce total interest. See your potential savings with Auto Refinance through Upgrade. Checking your rate won’t impact your credit score.

The Bottom Line

Your credit score doesn’t just determine if you can buy a car. It determines how much that car will really cost. By understanding what drives your score and taking steps to improve it, you’ll have more control, more options, and more potential savings.

Whether you’re ready to refinance your auto loan or want to consolidate debt to improve your credit score, Upgrade offers transparent products designed to help you move forward.

Auto refinance loans through Upgrade feature Annual Percentage Rates (APRs) of 5.54%-19.94%. Lowest rates require Autopay. The APR and other terms of your loan may vary and you may not be presented with multiple offers. If offered, your loan terms, including your rate, will depend on credit score, credit usage history, loan amount, and other factors. Late payments and other fees, as noted in your Borrower Agreement, may increase the cost of your fixed rate loan. Eligible vehicles must be 10 years old or newer and have less than 130,000 miles (or less than 150,000 for trucks).

Personal loans made through Upgrade feature Annual Percentage Rates (APRs) of 7.74%-35.99% and a 1.85%-9.99% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For certain discounts, collateral may be required. Repayment terms from 24 to 84 months. For example, if you receive a $10,000 unsecured loan with a 36-month term and a 17.59% APR (which includes a 13.94% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 and would have a required monthly payment of $341.48. Over the life of the loan, your payments would total $12,293.46. The APR and other terms of your loan may vary and you may not be presented with multiple offers. If offered, your loan terms, including your rate, will depend on credit score, credit usage history, loan amount, and other factors. Late payments or other fees, as noted in your Borrower Agreement, may increase the cost of your fixed rate loan. Certain loan offers may not be available in all states.

Credit Lines feature Annual Percentage Rates (APRs) of 14.99% - 29.99% based on creditworthiness. The lowest rates require Autopay. For example, a $1,000 card purchase with a 36 month term and a 19.99% APR has a monthly payment of $37.55. Balance transfers are subject to a fee of up to 5% per transfer. Foreign transactions are subject to a fee of up to 3% per transaction. ATM withdrawal fees may apply. If incurred, these fees will increase your finance charge and APR. A late fee of up to $29 per late payment may apply. Your rate, line amount, and default term depend on maintaining a qualifying credit score, your credit usage history, requested amount, and other factors. The Upgrade Card is unique in that it allows you to obtain a series of closed-end loans which you may access through transactions such as card purchases up to your approved amount. As you repay your balance, additional credit may become available to you up to an approved amount subject to meeting our credit requirements, but your line will not replenish automatically.