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How does your credit score affect the car you buy?

There are a lot of factors that should be considered when buying a car, but one that is probably the least often thought about is the credit score. Most car buyers are excited to talk about make, model, color, and the various options but might not understand that a credit score is a very important factor in purchasing any car, new or used.

A credit score is a numerical representation of your credit history, affected mostly by your ability to repay a loan on time. Lending agencies use it to establish the risk of loaning a person money. Credit scores (also known as FICO scores), typically range from the low-300s to the mid-800s, and are a major factor in determining how much car you can afford or whether or not you can even get a car at all. Because most people need to obtain a loan in order to cover the cost of a vehicle, a credit score in part decides the amount of the loan, its length, and the interest rate. The risk of loaning you money is determined by your credit score.

Usually, the higher your credit score is, the less risk you are of defaulting on the loan. This means you will be able to borrow more money at a lower interest rate. Credit scores around 700 are considered "prime" and will generally obtain the best financing terms, while scores in the mid-500s might qualify for "below-prime" rates, which are more costly than other types of loans.

It is difficult to get a good interest rate or a high loan amount if you have a low or non-existent credit score. In fact, some banks won't loan you any money if you don't have a credit score at all, as having no credit is almost worse than having poor credit. In addition to affecting the car-buying process, your credit score can also affect the type of insurance you're able to obtain once you do finally take your new car home. Once again, the better your credit score is, the better chance you'll have of getting more affordable auto insurance.

If you're in the market for a new car, it is always a smart idea to find out your credit score before you sit down with a lender or even step foot on a car lot. There are several ways online to check your credit score, and many credit card companies offer this service as part of card membership.

Check your credit score early on in the process. It's better to be educated about it before you start your car search, so you can better anticipate your car-buying power.