According to FICO, “fair” credit is considered a credit score that falls between 580 and 669. It's possible to get a car loan with fair credit, but it can be more difficult to get approved. You stand a better chance if you're working with the right kind of dealership, and Drivers Lane can help you find one near you.
Understanding Your Credit Score
Most lenders look at your FICO score when determining eligibility for an auto loan. While knowing what it is helps, it’s even better if you know what goes into your credit score and how you can improve it.
Your FICO score is made up of five components:
- Payment history: 35% – Have you been on top of all your bills? The more consistent you are with making on-time payments, the higher your credit score is likely to be.
- Amounts owed: 30% – Amounts owed includes the overall debt you have on all your credit accounts, as well as your credit utilization ratio. The latter is the amount of your credit card balances divided by the amount of your credit card limits. The rule of thumb is that your credit utilization ratio starts to negatively impact your credit score when it's higher than 30%.
- Length of credit: 15% – This shows how long your credit accounts have been open, how often you use them, their average age, and more. Generally, the shorter your credit history, the lower your score.
- Credit mix: 10% – Lenders like to see that you can handle various types of credit. They look to see if you have a mix of installment credit (loans, mortgages) and revolving credit (credit cards).
- New credit: 10% – Opening new lines of credit can help improve your score, as long as they're managed properly. However, you shouldn't go haywire and open multiple accounts at once. The hard inquiries made as a result can negatively impact your credit score.
As for what items don’t affect your credit score, things such as age, demographics, and employment history aren’t considered. Your credit score is determined by your spending habits and payment history.
Lenders That Work with Fair Credit
If you have fair credit and need a car loan, where should you apply? We recommend that you start with your bank or credit union first. Even if they turn you down, it doesn’t hurt to try to get pre-approved before looking elsewhere.
If that doesn't work, you can try these two types of lenders that work with fair credit:
- Subprime lenders – These lenders work through special finance dealers and know how to handle various credit situations. They use your credit score when qualifying you, but also consider outside factors such as your income, down payment, and residence stability. You get a chance to build credit with one of these loans, as subprime lenders report loans and on-time payments to the credit bureaus.
- Buy here pay here dealerships – Buy here pay here (BHPH) dealers, which are sometimes called tote the note dealerships, offer in-house financing. This means they are also a lender. People with fair credit who are struggling to get approved stand a better chance at one of these dealers. BHPH dealerships usually don't even look at your credit score, and instead base approvals on your income. However, you may not get a chance to improve your credit score with one of these auto loans. Check with them ahead of time to see if they report loans or timely payments, as some don't.
Finding a Dealership to Work With
Fair credit isn’t the end of the world – you just need to find the right dealer to work with. Now that you know you have options, where do you start? With Drivers Lane, of course!
We work with a nationwide network of special finance dealerships that know how to handle fair credit, bad credit, and other unique credit situations. Fill out our easy and hassle-free car loan request form, and we'll begin the process of matching you to a local dealer.
There's never any cost or obligation to buy, so what are you waiting for? Get started right now!