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.
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.
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.
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.
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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.
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.
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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.
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:
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
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.
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 RangeStatus300-579Poor580-669Fair670-739Good740-799Very Good800-850ExceptionalAccording to Bankrate, an expert source for consumer financing information and advice, this is what FICO emphasizes when calculating its credit scores.
CategoryPercentagePayment history35%Amounts owed30%Credit history length15%Mix of credit accounts10%New credit10%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 RangeStatus300-500Deep Subprime501-600Subprime601-660Nonprime661-780Prime781-850Super PrimeBy percentage, here is where VantageScore 4.0 places its emphasis when calculating its credit scores, according to Bankrate.
CategoryPercentagePayment history41%Credit utilization20%Credit history and mix20%Credit applications11%Credit balances6.0%Available credit2.0%MORE: 0% APR Guide: What You Need To Know Before Financing a Car
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.
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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.
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.
