When you finance an automobile, the prospective lender rates you on a scale, usually called a tier rating. This rating is based on your FICO credit score. If you have a high FICO score, you have a definite advantage when applying for bank auto loans over someone with a poor score.
What Is a FICO Score?
FICO stands for the Fair Isaac Corporation, the company that calculates credit scores. Each score is based on credit reporting information from each of the major credit bureaus (Experian, Transunion and Equifax). The score is based on a number of key factors, including payment history and the amount of money owed on debt accounts. The highest credit score a consumer can have is 850.
Tier One
When a car lender evaluates your credit profile to determine your creditworthiness, it categorizes your application as tier one, two, three or four credit. Tier one credit is for applicants who have the best FICO scores--of 720 or higher. The exact minimum may vary depending on the lender's rules. If you have a score of 700 or higher, a car lender will commonly rate you as either tier one or two, which affords you the best rates and financing deals.
Low and Zero-Percent Financing
When you have a high FICO score, you'll usually have a much easier time sailing through the application process to get a car loan. Sometimes dealerships offer low and zero-percent financing deals to people with tier one credit. If you check the fine print of advertisements you may see the tier levels listed. You may also avoid the need for a down payment in order to get a car loan if you have a high FICO score.
Suggestions
If your score is low or just slightly below the 720 mark for tier one credit, work on boosting your score to get the best possible car deal. One way to improve your FICO is to pay off some of your debt. Thirty percent of your credit score is based on amounts owed, so the more you reduce this figure, the better your score gets over time (holding all other credit details constant). You should also seek auto financing at a credit union, which often offers the best rates compared to traditional banks.
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