Quick Facts About Your Credit Score
- The three major credit bureaus constantly update your credit information, enabling daily score fluctuations. Therefore, it pays to check your score regularly.
- FICO and VantageScore are the two basic types of credit scores.
- A credit score above 700 is good. A score below 600 is weak on the credit score models.
New and used car prices remain high, and credit remains tight. Consequently, the health of your credit score is more important than ever when borrowing money for a car loan.
Why? Lenders use your credit score to determine creditworthiness and risk. The higher your score, the lower the risk you pose, the more you can borrow, and the lower the interest rate a lender will charge you on a car loan. While it isn’t the only factor, lenders base your qualification for a loan, the loan limit, and the interest rate for borrowing that money on your credit score.
According to data recently gathered by Cox Automotive (Kelley Blue Book’s parent company), the average transaction price for a new car in August 2025 reached around $49,077, about 2.6% more than in July. It’s the largest one-month increase in nearly two years, and more than 25% higher than five years ago. Consequently, the odds are that many of us will not be paying cash for a vehicle. By the way, the average listing price for used cars was $25,393 in August 2025.
So it might be time to polish up that credit score. However, many of us remain a little fuzzy on how credit scores work and how they affect our ability to finance or lease a car. If you plan to pay cash for your next new or used car, you can probably stop reading here. However, if you are like most Americans, you will need to borrow at least some amount of the cost of your next vehicle.
Let’s look at credit scores and familiarize ourselves with essential terms and tips to help you improve yours. Only then will we understand how it impacts our capacity to borrow for loans, including for your next used, new, or leased vehicle.
- What Is a Credit Score?
- What Does a Credit Score Look Like?
- How To Check Your Credit Score
- What Is a Good Credit Score?
- What Is a Bad Credit Score?
- What Credit Score Do I Need To Buy a Car?
- What Factors Affect Your Credit Score?
- FICO vs. VantageScore: What’s the Difference?
- How To Improve Your Credit Score?
- Credit Score Terms You Need To Know
- Our Take
What Is a Credit Score?
Your credit score is a snapshot of your creditworthiness at any given moment. It is a finger on the pulse of your ever-changing financial health. We use the term “ever-changing” because each on-time payment you make for a utility or other bill, each purchase you put on a credit card, each late payment, and so on affects your financial health. Consequently, your credit score can change with every update.
Before the wide acceptance of credit scores, lenders had to research a borrower’s history physically. They phoned the local credit bureau to determine where a borrower had open accounts and then phoned them one by one to learn the borrower’s latest payment history. Today, lenders don’t need to do all that heavy lifting because it’s consolidated for them into a credit score. It’s one-stop shopping for credit history gathering.
Three national credit bureaus collect and report your credit activity:
The credit bureaus might score the same borrower differently at any time because each receives information at a different pace. Moreover, a lender may report to one or two but not all three. However, your score shouldn’t vary more than a few points when comparing one to the other.
Pro Tip: Credit bureaus regularly update your credit information. Therefore, your credit score can change each month and will vary from year to year. It pays to check your score every few months.
What Does a Credit Score Look Like?
There are two basic types of credit scores: FICO and VantageScore. We will look more closely at each below. Each frames a credit score as a 3-digit number from 300 to 850. Spoiler alert: The closer your score is to 850, the better a lender will feel about you as a loan risk.
The hitch is that these competing companies use a somewhat different formula for computing your credit score. However, they consider the same factors. They arrive at different scores because they weigh the various factors differently.
How to Check Your Credit Score
Before trying to finance a car (or anything, for that matter), you must know your credit score. But how do you do that? A good place to start is your credit card issuer, credit union, or bank. Many provide credit scores to customers and depositors as a free service.
You can also reach out to Experian, Equifax, or TransUnion with a credit report request. By law, each year, they must supply a free credit report to any consumer requesting one. Now the bureaus offer free weekly reports through AnnualCreditReport.com.
MORE: Is Now the Time to Buy, Sell, or Trade in a Car?
What Is a Good Credit Score?
According to Experian, a FICO or VantageScore average of 700 or above is good. However, things are never that simple, right? For example, Experian considers a credit score between 661-780 as Prime. This score is in a rating system that includes Deep Subprime 300-500, Subprime 501-600, Nonprime 601-660, Prime 661-780, and Superprime 781-850.
For car shoppers, Experian places the average credit score for financing or leasing a new car in the first quarter of 2025 at 756. In the same quarter, it was 684 for used car financing. Just over 31% of new and used car loans and leases that quarter went to borrowers with a credit score of less than 661.
What Is a Bad Credit Score?
A score below 600 is bad on the credit score models. According to Experian, borrowers with a credit score of 600 or below accounted for about 16% of new and used car loans in quarterly reports.
RELATED: Can I Buy a Car With Poor Credit History?
What Credit Score Do I Need to Buy a Car?
Your best odds of securing a conventional car loan are with a credit score in the Prime range, at 660 and higher. However, if your score is above 600 in the Nonprime category, it’s worth shopping around to get the best rate. Remember, nearly a third of car loans and leases at the beginning of the year went to borrowers with less-than-Prime scores.
Regardless of your score, we recommend you test the water at a few banks, credit unions, and finance companies to see if you can qualify for financing and, if so, how much. The more money you can muster as a down payment, the better your chances of getting a vehicle loan. Use our car payment calculator to see an estimated monthly car payment for either a new or used car.
Pro tip: According to Experian, getting pre-qualified for a car loan does not affect your credit score. It’s considered a “soft credit inquiry.” So, go ahead and shop around for car loan financing.
What Factors Affect Your Credit Score?
The factors both FICO and VantageScore use to calculate credit scores are no secret. Moreover, they make perfect sense. However, they weigh each factor differently. Check out the list:
- Credit utilization/amount owed: Amounts owed — also called credit utilization — is the share of your available revolving credit you’re using (balances compared to limits). Keeping it under 30% per card — the lower the better — helps your score.
- Payment history: Any late payments, collections of bad debts, and negative public filings fall into this category.
- Credit mix: Lenders like to see a credit portfolio comprising installment loans and revolving credit accounts.
- Credit history length: This measure comprises the average age of all your credit accounts. The deeper the credit history, the more lenders like it.
- Recent activity: Somewhat different from credit history length, recent activity involves recent loan applications and other pursuits, indicating new accounts may be opening.
- Credit usage: Although creditors like to see several older accounts, they also want those accounts to have low balances. This measure evaluates your current credit balances against your total maximum credit limit. Having a total credit limit of $20,000 among all your accounts with total outstanding balances of $19,000 will subtract serious points from your credit score.
NOTE: The three bureaus don’t report paid medical collections, wait one year before reporting new medical collections, and exclude collections under $500. A Consumer Finance Protection Bureau (CFPB) rule finalized in January 2025 to ban medical debt from reports was vacated by a federal court in July 2025, so those voluntary bureau limits remain the operative standard nationwide.
MORE: 0% APR Guide: What You Need To Know Before Financing a Car
FICO vs. VantageScore: What’s the Difference?
Your likely first question is: Why two credit scores? Not to put too fine a point on it, but the credit score count doesn’t end at two. Many lenders compute their own credit scores, which vary at least somewhat from those of both FICO and VantageScore. In reality, each of us has several different credit scores floating around the credit universe.
For our purposes here, we will concentrate on the two big ones: FICO and VantageScore. Although both FICO and VantageScore use a numbering scheme between 300 and 850, they arrive at their numerical scores by assigning different weights to the factors considered.
What Is FICO?
FICO stands for Fair Isaac Corp. It began in 1956 as Fair, Issac and Co., a Bozeman, Montana, enterprise. It’s now headquartered in San Jose, California. It’s the most accepted credit scoring service among all those computing credit scores.
It breaks down the 300-850 credit score spread into five segments:
| Score Range | Status |
| 300-579 | Poor |
| 580-669 | Fair |
| 670-739 | Good |
| 740-799 | Very Good |
| 800-850 | Exceptional |
How Are FICO Ratings Calculated?
According to Bankrate, an expert source for consumer financing information and advice, this is what FICO emphasizes when calculating its credit scores.
| Category | Percentage |
| Payment history | 35% |
| Amounts owed | 30% |
| Credit history length | 15% |
| Mix of credit accounts | 10% |
| New credit | 10% |
What Is VantageScore?
VantageScore Solutions has been around since 2006. It’s a joint venture of Experian, Equifax, and TransUnion, the Big Three of national credit-reporting services.
Currently, Experian slices the 300-850 score spread into five areas:
| Score Range | Status |
| 300-500 | Deep Subprime |
| 501-600 | Subprime |
| 601-660 | Nonprime |
| 661-780 | Prime |
| 781-850 | Super Prime |
How Are VantageScore Ratings Calculated?
By percentage, here is where VantageScore 4.0 places its emphasis when calculating its credit scores, according to Bankrate.
| Category | Percentage |
| Payment history | 41% |
| Credit utilization | 20% |
| Credit history and mix | 20% |
| Credit applications | 11% |
| Credit balances | 6.0% |
| Available credit | 2.0% |
MORE: 0% APR Guide: What You Need To Know Before Financing a Car
How to Improve Your Credit Score
So, you find yourself with a credit history with more dings than a 1955 Chevy and a bad credit score somewhere south of 600; now what? We’ve all heard the saying, “Rome wasn’t built in a day.” This also covers repairing bad credit. It is especially true if you’ve had a bankruptcy, repossession, or judgment in the past seven years.
That’s how long those big negatives stick with us and appear on our credit report.
Even if that’s the case, now is the time to begin taking control of your credit. Remember, your credit score is a living thing. It is constantly changing to reflect both good and bad behavior. Let’s stick with the good. Use our tips below to improve your credit score.
- Obtain your credit report: You must know where you are to plan a course of action to where you want to go. Your credit report will reveal the issues bringing down your credit score.
- Dispute any inaccuracies: The credit bureaus only reflect the information lenders provide. Surprise — it’s not always accurate. You have the right to dispute any mistakes. Each of the three credit agencies provides a process for resolving disputes. However, you must correct any errors with each bureau separately.
- Bring accounts current: Catch up on any delinquent payments. Other than big dings like bankruptcy and repossessions, late payments are historically the biggest drag on a credit score.
- Reduce credit balances: Lenders don’t like seeing credit accounts maxed out. You need to keep outstanding balances at 30% or less of the credit limits. This requires a two-pronged approach. One, stop charging! Two, make more than the monthly minimum payment.
- Refrain from opening new accounts: If you experience issues managing the accounts you already own, more accounts will only add to the problem. You can’t borrow your way out of debt. Moreover, even applying for a new account can lower a credit score. It introduces uncertainty into your creditworthiness. Lenders really don’t like uncertainty.
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Credit Score Terms You Need to Know
In reviewing your credit score and credit report, you may run across terms with which you are unfamiliar. Here are the most common terms related to credit scores and credit reports.
- 3-in-1 Credit Report: A merged credit report containing the reports from all three major credit reporting agencies: Experian, Equifax, and TransUnion.
- Borrower: The party responsible for repaying a loan.
- Charge-off: A credit balance of a delinquent debt that a creditor removes from its books, never expecting to be repaid.
- Collections: A debt balance in collections has been assigned to a third party to recover what it can. It retains a percentage of any money recovered, returning the rest to the creditor.
- Creditor: Any lender to which you owe a debt balance.
- Credit Limit: The maximum amount a credit card will allow you to charge.
- Debt: Money owed.
- Default: The status of an unpaid account. A 90-day delinquency is severe, but default definitions vary by lender and type of loan.
- Delinquency: The state of being behind in payments on a credit account.
- Fair and Accurate Credit Transaction (FACT) Act: Signed into law in 2003, it requires credit bureaus to provide any requesting consumers a free copy of their credit report. These reports usually include a credit score.
- Installment Account: Any loan on which you must make a fixed payment each month until it’s paid in full.
- Judgment: The decree of a judge that the borrower must pay an outstanding balance.
- Late Payment: The failure to make an agreed-upon payment on time.
- Repossession: The act of a creditor recovering the collateral for a loan for a grossly overdue payment. In the case of an auto loan, the lender recovers a vehicle on which several payments are overdue.
- Revolving Account: Here, the monthly payments aren’t fixed but are based on the outstanding balance each month. Credit cards are revolving credit accounts. As you pay down the balance, the minimum monthly payment due shrinks. As you make new charges, the minimum monthly payment due increases.
- Scoring Model: The mathematical formula employed by credit bureaus to evaluate a borrower’s credit history and risk. In other words, it determines a borrower’s credit score.
Our Take
Knowledge is power, and the more you know about your credit health, the better prepared you are to secure financing at the best interest rate possible. It’s never too soon to take charge of your credit score, repairing any damage, reducing balances, and reining in your credit card spending.
