If you’re in the market for a quality used car, you might be worried that your FICO credit score isn’t up to snuff—and that concern is not without merit. Traditional lenders and dealerships rely heavily on a buyer’s FICO score when deciding whether or not to approve them for a loan, but is that fair?
Let’s take a look at what a FICO score is and how it’s used in lending decisions.
What is a FICO Score
In 1989, lenders started relying on FICO scores, which were introduced by the Fair Isaac Corporation. While it’s not the only credit scoring model, it is the most widely used, with 90% of the country’s top lenders basing a potential borrower’s creditworthiness based on three little numbers.
Those numbers, the FICO score, range from 300 to 850 with an exceptional score being 800+, a very good score between 740 and 799, good is 670 and 739, fair between 580 and 669, and poor 579 and below. Those scores are calculated using a not-fully-disclosed formula that bases a score on the following weighted criteria:
- History of On-Time Payments: 35%
- Amount Owed vs. Amount of Available Credit: 30%
- Length of Credit History: 15%
- Amount of New Credit: 10%
- Mix of Types of Credit: 10%
Typically, a traditional lender will want to see a score that falls in the good or above range, although some will lend to buyers with fair FICO scores, so unless your credit score is at least 670, you’re not likely to get a loan.
To make things a little more complicated, there are various versions of the FICO score tailored to particular types of industry, so some auto lenders use the FICO Auto Score, which has several versions of its own.
The FICO score doesn’t only determine whether or not you’ll get a loan; it also determines your interest rate. The lower your score, the higher your interest rate and the more you’ll end up paying for your purchase.
But is that fair?
Yes and no. Banks and traditional dealerships are trying to protect their interests by loaning to those who they deem creditworthy. The problem is that a FICO score is a picture of what someone has done in the past. That means one month out of work, a few weeks of unemployment, or one unexpected expense can cause your credit to take a nosedive and leave you unable to buy the car you need.
- It doesn’t matter if you had excellent credit for 10 years.
- It doesn’t matter if you earn more than enough to make the payment.
- It doesn’t matter if you have no other debt.
On that credit score—a snapshot of a short span of your financial history—rests your ability to borrow from traditional lenders.
There is Another Way
For car buyers with bad credit, buy here pay here dealerships, like Victory Used Cars, do their own lending, and they make their decisions based on a borrower’s ability to pay going forward rather than what happened in the past.
All we want to see is that a borrower has a job, an address, and a bank account. We provide monthly payments that the buyer can afford—no credit check required.
So while you’ll need a score of at least 670 to borrow from a traditional lender, there is no minimum credit score required to borrow from Victory Used Cars. Most people will have credit trouble at some point in their life, but that shouldn’t stop you from getting the quality pre-owned car you need—and it won’t when you come to Victory Used Cars!