What's the Minimum Credit Score Needed for Approval?
Understanding credit scores and how they affect your auto loan approval in Canada
Few people can manage without a vehicle these days. Whether it's a car, truck, or van, a vehicle is a large purchase, and most people want to get a loan rather than pay cash. A good credit score is a huge benefit if you want to finance a vehicle in Canada.
But what is a good credit score? And how does your credit score affect your chances of getting approved for a loan? This article will discuss everything you need to know about auto loans and credit scores in Canada.
What is a Credit Score, and Why is it Important?
Your credit score is a three-digit number that lenders use to decide whether to offer you a loan and the interest rate to charge. The range of scores is between 300 and 900. A high score means you're a low-risk borrower, which could lead to a loan with favorable terms.
These include easier approval, lower requirement for cash down payment, and lower interest rates, sometimes substantially lower. Even a few percent difference can save you a lot of money over the life of the loan.
Benefits of a Good Credit Score
A good to excellent credit score tells the lender that you will always make your payment on time. This trust is what makes the difference. Lower rates and favorable terms are the incentives for you to get your loan through that company.
How Your Credit Score is Calculated
A credit score is calculated based on your credit history. This is the record of how you've handled borrowing and repayment in the past. The credit bureaus consider the information in your credit report to generate your credit score.
If you have been timely in paying bills in the past, your score will likely be in the good to excellent range. A late payment that occurred sometime in the past shouldn't hurt your score significantly, but a habit of missing payments or bankruptcy does a great deal of damage. In addition, this information will stay on your record for at least six years.
If you have had some trouble in the past, don't worry. There are ways to rebuild your credit discussed in our resources.
What's the Minimum Score to Get Approved in Canada?
The answer: There is no set minimum score, but most lenders like to see a score of at least 650.
Generally, 630 or below comes into the subprime range, where available loans have higher rates. However, rates are relative—banks often have more stringent rules, while alternative lenders may be much more flexible.
Don't Give Up!
If one potential lender turns you down, don't give up. Different lenders have different criteria, and we can help you find the right match.
At least 20% of Canadians fall into the subprime category. Most can still get loans, but they may have to settle for a slightly less expensive car to compensate for the higher interest.
Improving Your Credit Score for Easier Approval
There are many things you can do to improve your credit score:
Pay Down Debt
Reduce your outstanding balances to improve your credit utilization ratio.
Pay Bills On Time
Always make your payments on time to build a positive payment history.
Check for Errors
Review your credit report for mistakes or fraud and get them corrected.
Secured Credit Card
Use a secured card for small purchases and pay it off monthly to build credit.
A secured credit card is a simple way to establish good credit. Use it to make small purchases each month and pay the card off in full and on time. In six to twelve months, you will have established a good record of payments which should raise your score.
Let Us Help You Find the Best Loan
Many savvy Canadians prefer to let the experts at ConsumerAuto help them find the best loan for their vehicles. We specialize in matching people who need a car with the best loan available, regardless of credit history.
We work with a vast network of dealers and lenders across Canada