This site was designed for the latest version of Chrome, Firefox, Safari, and Internet Explorer (version 10+). Some features may not work correctly in your browser. OK

Krause Toyota | Credit Information | Breinigsville, PA

7702 Penn Dr.


  • Monday
    8:30am - 8:00pm
  • Tuesday
    8:30am - 8:00pm
  • Wednesday
    8:30am - 8:00pm
  • Thursday
    8:30am - 8:00pm
  • Friday
    8:30am - 6:00pm
  • Saturday
    8:30am - 4:00pm
  • Sunday

Contact Information

7702 Penn Dr.
Breinigsville, PA 18031
Phone: (866) 272-1900
Fax: (610) 395-9705

Contact Us

The Basics of Credit Scores and How They Affect Car Loans

Ever wondered exactly what makes up your credit score and whether or not it really matters when purchasing a car? The answers to those questions are important to understand before you make a big purchase like your next new vehicle. We’ve put together a basic explanation of credit scores and their relevance in the car-buying process.

What Goes into Your Credit Score

A credit score is a three-digit number that tells the story of your financial history. The number is made by taking information from your credit report, and then running it through an algorithm. Credit scores exists so that financial institutions can predict how likely a person is to pay on loans and to pay on time based on his or her history.

There are several different models for creating a credit score, but approximately 90% of financial institutions use one that’s called FICO. FICO credit scores can range from 300 to 850. The higher the number, the better the credit score. There are five components that work together to determine a credit score: payment history, amounts owed, length of credit history, types of credit used, and new credit. Note that because new credit is on the list, inquiring about multiple loans at a time can hurt your credit score.

How Your Credit Score Affects a Car Loan

As mentioned above, financial institutions will review your credit score before giving you a loan. They’ll use your score to determine your risk factor—that is, whether or not you’re likely to pay. But even if you have a low credit score, that doesn’t mean you can’t buy a car; it just means that you might be made to pay more in interest than if your credit score was good. Before agreeing to any loan shop, around and see what’s available. But do remember to keep your inquiries to a minimum to avoid hurting your credit score more.

Buying a Car with New or Bad Credit

If you’re shopping for a car and don’t have the highest credit score, don’t worry. Contrary to popular belief, having a new or a bad credit score doesn’t have to mean that you can’t buy a car. It doesn’t guarantee you the best deal, but it also doesn’t have to mean signing off to outrageous interest on a loan. Here are the basics on how to buy a car with new or bad credit.

The Meaning of a Low Credit Score

A credit score is a three-digit number created based on your financial history. The higher the number, the better. Scores above 740 are usually considered to be really good and will get the lowest interest rates, while scores below 540 will get the worst rates, sometimes between 20-30%.

Several things factor into it, such as your payment history and your length of credit history. A score can be affected negatively by late payments, or even just by not having credit for very long. Thus, it can be just as difficult for young people with no credit to buy a car as it can be for those with years of bad credit.

Finding an Affordable Loan Interest with a New or Bad Credit Score

Before you take someone else’s word for it, check your credit score on your own. Each person gets a free credit report every twelve months; using that, you can discover what your credit score is. Then you’ll be prepared to negotiate with your potential lender. Also keep in mind that lenders tend to look at your income to debt ratio, your work history, and the type of loan you’re applying for as well. Be ready to provide information on these things.

The most important thing to remember is that you don’t have to settle right away. Shop around to see what offers you get. Check banks, credit unions, finance companies, and car dealerships to see who is willing to work with you. If you can handle a shorter loan period, that’s likely to lower your interest rate. It may be slightly more difficult, but with a little extra work you can buy a car even with bad credit.

If you would like more information from our finance department here at Krause Toyota, please contact us or fill out our credit application and we'll be happy to work with you!

- + Disclaimers