How to Get a Car Loan With a 720 Credit Score

by Kimberly Rotter | Updated Oct. 12, 2021 - First published on Sept. 24, 2021

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A 720 is a good score, but you might save money if you improve your credit before you apply for a car loan.

If you're shopping for a car loan with a credit score of 720 or higher, you're in a strong position. A 720 credit score is considered good by just about every lender. But even though 720 is a high enough credit score to get a car loan, you might be able to lower your costs and save money if you can improve your credit score before you apply.

Here are the steps you can take to maximize your credit score and shop for the best car loan.

Check your credit report

Before you apply for a car loan (or even if you choose to use a personal loan to buy a car), make sure your credit report is accurate. Many people find errors on their credit reports, and some errors can lower your score. You don't want to get stuck paying a higher interest rate just because of a mistake.

You can get copies of your credit reports from all three major credit bureaus by visiting AnnualCreditReport.com. If you find any inaccurate details, follow the agency's online process for requesting corrections.

Check your credit score

There are many ways you can check your credit score for free:

  • Free credit score website: Several consumer websites and financial institutions offer free credit scores online. These are usually VantageScores.
  • Free FICO score from your bank or credit card issuer: Some banks and credit card companies, including Bank of America, Wells Fargo, and Citi, offer free FICO scores to their credit card holders when they log in to their account online. Discover offers a free FICO score to anyone, even if you don't have a Discover account.
  • Free FICO score from a credit reporting agency: Experian offers free FICO scores to anyone who registers for an account (free or premium).

If you check your credit score in multiple places, don't expect the scores to all be the same. That's because your score can vary depending on which agency calculates it and which model (FICO or VantageScore) they use. To make matters even more interesting, there are multiple versions of FICO and several different versions of VantageScore. So don't worry if you see a range of scores.

The main reason to get familiar with your score before you apply for a car loan is that you might be able to improve it before you apply. A 720 credit score is close to the excellent credit range but not quite there.

Virtually all free credit scores come with information about the factors affecting your score. If, for example, your credit score is being hurt by your credit utilization ratio (how much revolving debt you have compared to the credit limit on your credit cards), you could call your credit card issuer and ask for a limit increase. As long as your balance doesn't go up, the higher credit limit can improve your score.

Shop for the best loan

Here's a look at the steps you should take when you're applying for a car loan.

Apply with multiple lenders

Apply with at least two or three lenders (or many more, if you'd like) to compare terms. Be sure that when you apply, you ask to be pre-approved for the loan (not pre-qualified). That means the lender will check your personal information and run a credit check.

Find out lender limitations

Some loans are only available for the purchase of a car from a certain dealership or manufacturer. Some loans are only for used cars, others for new cars. Most pre-approvals have an expiration date. Be sure you know the limitations associated with any loan you apply for.

Apply within 2 weeks

Normally, every time you apply for credit, your score can go down by a few points. The exceptions are when you apply for certain kinds of credit, including car loans. The credit scoring agencies understand that you need to apply with multiple lenders in order to compare offers, so they all give you a rate shopping window. During that window, all inquiries from auto loan lenders will count as a single hard inquiry against your credit score.

Auto loan inquiries are completely ignored by FICO for 30 days. Then, the rate shopping window is between 14 and 45 days, depending on what scoring model is used. Lenders have to pay for scoring models, and they don't all upgrade every time a new one is released. Since you won't know what score a lender will use, it's best to apply and compare loans within 14 days -- the smallest rate shopping window -- just to be safe.

Consider a variety of lenders

Don't forget to check with the dealership in addition to whatever banks, credit unions, or online lenders you consider. Sometimes the dealer will be willing to match or beat whatever financing offer you walk in with. This is tricky territory, though. Car dealerships are notorious for adding unwanted costs to your contract, like prepaid maintenance or extra insurance coverage.

Shop below your loan amount

All cars require maintenance and fuel (either gas or electricity), plus you'll pay taxes and registration fees. And then there's auto insurance. So remember that the loan is not the only line item you'll be adding to your budget. When you decide how much car you can afford, keep those other ownership costs in mind.

Protect your credit

A car loan won't contribute to your credit utilization ratio, as that is based on revolving credit. But it will play an important factor in:

  • A healthy credit mix (the types and variety of credit you use)
  • Your payment history (the most important factor in your credit score)
  • Your credit age (after you pay off your car loan in good standing, it'll continue to have a positive effect on your credit score for 10 more years)

That's why it's important to handle a car loan responsibly and make sure you know what you're getting into before taking one out.

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