Yes, a 500 credit score will still qualify you for a car loan. However, credit scores affect the types of loans you are eligible for, as well as interest rates, loan amounts, and more. If you have a credit score that needs improving, it won’t stop you from getting a car loan, only the terms. Let’s take a closer look at how low credit scores impact your loan, what you can do to improve your credit quickly, and what you’ll need to do to get a loan even with less than perfect credit.
How Do Credit Bureaus Calculate Credit Scores?
You must first understand that to improve your credit, you must understand that credit agencies calculate your credit score using an algorithm. This algorithm factors your income, current debt, available credit, payment history, and more to determine your credit score. Lenders use your credit score as the basis for calculating the potential you represent to pay a loan in full and on time. Borrowers with a lower credit score represent a higher risk of on-time car payments. Therefore, borrowers with lower scores incur higher interest rates to offset the lender’s risk.
Credit scores fall within the range of 300 to 850 points. The credit bureaus refer to scores ranging from 300 to 579 points as Poor, a rating that 16% of Americans tend to have. With a credit score between 580 and 669 points, you have a Fair credit score, as do 17% of Americans. Meanwhile, 21% of Americans have a Good credit score within 670 and 739 points, while 25% have a Very Good credit score between 740 and 799 points. Finally, those with a score of 800 points or higher have an Excellent credit rating.
Improve Your Credit Score
Americans tend to have an average score of 710. That said, over 20% of all auto loans are extended to those with credit scores under 600. So if you have no credit or poor credit, you might not have to do much to improve your score and get a car loan.
Experts recommend checking your credit score often. Creditors report to the bureaus every month, which means your score changes every month. If you continue to make payments on time, your score will rise. Conversely, if you have late payments or other derogatory marks against you, your score will drop. Often, people have errors on their credit reports for instances that don’t belong to them. Disputing these errors and getting them removed will quickly raise your credit score.
Your debt to income ratio factors into your score. Financial advisors recommend keeping your debt to income ratio below 30%. That means if you have an annual income of $40,000 you should carry no more than $12,000 in debt. In this situation, if you could get your debt down to $8,000 you’d have a 20% ratio which can raise your credit score considerably.
For instance, if you were to receive a $4,000 tax refund in April, you can pay down your debt to increase your credit score rather than spend it on a new television and living room furniture. A higher credit score can lower your interest rate on a car loan saving you thousands of dollars each year.
Another trick financial experts suggest is to get another credit card, which sounds counter-intuitive, but actually works. Your available credit also factors into your credit score. If you have little or no available credit, this lowers your credit score. Getting another credit card will increase your available credit and increase your credit score.
Hard credit inquiries have a temporary negative impact on your credit score, so applying for a credit card will lower your score in the near term. Most of these inquiries fall off your report within months, but some take over a year. Hence, if you want a quick credit score increase, adding a new card might not help.
Get Pre-Qualified for a Loan
Getting pre-qualified for a loan only requires a soft credit inquiry, which means you can shop around for loans and get competing offers without impacting your score. It would help if you shopped for a loan like you would anything else you consider buying. You wouldn’t pay full price for a pair of pants when you can get them somewhere else at 50% off. Why would you pay more for a car loan? Shopping around for the best rates only makes good financial sense.
At Rydell Outlet Center, you can quickly get pre-approved for a loan using our online financing application. Then, in minutes, you’ll have your answer and can begin shopping for your dream car, truck, or SUV.
Consider Getting a Co-Signer
Getting a relative or friend to co-sign for your car loan can save you money. If you have no credit history, a co-signer might be necessary. A co-signer will put their creditworthiness to work on your behalf because they will be responsible should you fail to repay the loan. In addition, by getting a co-signer, you may qualify for a larger loan, giving you more buying power.
Speak with Our Finance Department
Our finance managers are experts at finding loans that fit your budget regardless of your credit. We’ve cultivated relationships with many local North Dakota and Minnesota lenders. Many have programs in place to support buyers with little or no credit. We leverage these relationships every day to get our customers a loan that works.
After a quick assessment of your financial situation, our team will determine which loans work best for you. Then, we’ll give you several loans to choose from, giving you the information to make the best decision.
At Rydell Outlet Center, we understand your credit score doesn’t necessarily reflect your commitment to paying your bills. Things can happen in life, like losing a job or medical situations arise. These events can negatively impact your score, but we believe everyone deserves the right to own a car. We invite you to contact our finance department online or stop by to discuss your situation. Our team of experts can find you a loan that makes sense for your situation and get you behind the wheel of that car, truck, or SUV you’ve always wanted.
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