Buying a car is a big deal, which often requires a big financial commitment.

If you are looking at accessing car financing to get behind your next set of wheels, you’re probably wondering what credit score you need to apply for a car loan.

Credit scores can be confusing; we get that. That’s why we’ve written this guide on what credit score you need to be able to buy a car.

How do credit scores work?

Before we jump straight into the credit score deep end, let’s take a moment to go over how credit scores work.

In Australia, our credit rating is a number used to represent your reputation as a borrower of money. Three main credit bureaus are responsible for determining your rating (otherwise known as your credit score) and will range anywhere from 0-1,000 or 0-1,200, depending on the credit bureau.

An excellent credit score is a credit score that typically sits anywhere from 800 up to 1,200 points. A good credit score is upwards of 600, with any score usually under 500 is considered a low credit score. Having a bad credit rating may not necessarily reflect your current financial health, but, unfortunately, if your credit file has some blemishes, it can make it tricky to access the credit you need to buy a car.

What causes a bad credit score?

When you take out a credit product, such as a loan or credit card, or even a post-paid mobile phone plan, your conduct around your account will reflect on your credit file. If you miss payments, default on the loan (which means missing repayments for more than 60 days), going into a debt agreement or bankruptcy can all lead to a bad credit score.

However, if you’ve never had a credit product before or are applying for a personal loan or car loan for the first time, it might surprise you that you could have a low credit score from the get-go! This, of course, hasn’t been caused by missing repayments, but having no credit history can be seen as risky in the eyes of the lender — this is because, you’ve not yet demonstrated how reliable you are as a borrower!

Can I access my credit report?

Credit reporting bodies in Australia are legally required to allow you to access a free copy of your credit report once every three months. This is great news for borrowers who want to keep an eye on their credit reports, or understand how their financial conduct is affecting their credit rating.

Given that your prospective credit provider will be looking at your credit report when they run a credit check as part of the car loan application process, it pays to get a free credit report to see whether there is any information on there that might be incorrect.

The credit score to apply for a car you should be aiming for

While there is no fixed minimum credit score requirement for accessing a car loan, most standard lenders will look for an Equifax credit score of around 600 or higher. The higher credit score an applicant has, the better chance of approval they have, and they will often have access to more attractive interest rates than those with bad credit scores.

What to know before applying for a car loan with a poor credit history

So, what happens if your previous payment history has tarnished your credit score? The good news is that you don’t necessarily need a high credit score to access car loans. This is because car loan eligibility criteria doesn’t solely rely on credit ratings.

Here’s what you should know before applying for a car loan with a lower credit score:

You may pay a higher interest rate

If you’ve been researching your personal loan options or are experienced at borrowing money, you’ll be familiar with the fact that interest rates will vary depending on your financial situation. How much interest you pay depends on your loan term, interest rate and loan amount. So, remember that the best car loan for you may not come down to the best interest rate.

Access secured car finance

Car loan rates tend to be lower than other personal loans, as they are often ‘secured’. This means that the car is offered as collateral against the loan, which reduces the financial impact on the credit provider, should you default and be unable to repay the loan.

Strive for financial stability before applying

We understand that the allure of a new car can be enticing. Still, if you don’t need a car immediately, it can pay to strive for more stability in your financial situation before applying for new credit. While 6-12 months may not leave a drastic credit score impact on your file, proving your financial discipline to a car loan lender can make a big difference.

Seek out lenders who specialise in bad credit

While you may find it more difficult to borrow money through traditional lenders, car loans are available for those with a poor credit score through Finance One. Our car loans for people with bad credit have been developed to suit many Australians who find it challenging to access the finance they need to get them ahead.

Content prepared by an external writer covering topics that may be of interest to our customers. The content does not necessarily represent the views or opinions of Finance One Commercial.

All loan applications subject to normal lending criteria. Fees and charges payable.

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances.  We do not accept responsibility for any loss arising from the use of, or reliance on, the information.

Finance One means:
Fin One Pty Ltd – ABN: 80 139 719 903
Australian Credit Licence: 387528