In the fine print for just about any new-car ad that touts a cut-rate lease deal or discounted auto-loan rate, you'll find that the promotion is almost always limited to what's known as "well-qualified" consumers.
In a nutshell, this means someone having less than a stellar credit rating will be asked to pay a higher interest rate to cover what's perceived as additional risk on the lender's part. What's more, insurance companies in many states often charge higher premiums to motorists having low credit scores. And those with especially low credit scores may be denied a lease, loan or car insurance altogether.
So-called FICO credit scores typically range from 300 to 850. According to Fair Issac Corp., the creators and curators of the FICO scoring system, around 57 percent of the borrowing population has "prime" or "near-prime" credit ratings, registering scores at 700 or better.
These are the people who can be expected to receive the most favorable lease or loan terms. Borrowers below the 620 mark are often considered "subprime," which means (if they qualify at all) they'll pay more to finance or lease a car.
FICO says this group accounts for around 30 percent of all consumers.
Credit scores are generally based on a borrower's account information, with the most consideration going toward his or her payment history and outstanding balances.
Also examined are when one's credit accounts were opened, the date of the last activity, and credit limits.
Expect points off for late or missed payments, debt collections, bankruptcies, exceeded credit limits and outstanding tax liens. To muddy the waters a bit, lenders will often use FICO scores tailored specifically to car buyers, which have a slightly broader range.
According to FICO data, those having credit scores of 720-850 would be offered a national average of 3.8 percent interest on a 60-month auto loan, while those with scores between 690-719 would pay 5.2 percent and those with scores of 660-689 will be charged 7.2 percent.
And it only goes up from there — those having credit scores of 500-589 can expect to face a whopping 15.8 percent interest, and that's probably limited to deep subprime financing arranged via neighborhood used-car lots.
At that, credit scores are typically tempered by other pertinent data. Lenders and leasing companies will, for example, look at an applicant's annual income to assess how large a monthly payment he or she can afford.
In some cases, making a higher down payment up front may help secure a lower interest rate or more favorable lease terms. Plus, underwriting standards usually vary to some degree from one source to another, so it pays to shop around multiple lenders and leasing sources to determine which will offer the lowest rates, given your credit history and current financial situation.
Even if you're not in the market for a new vehicle, checking your credit history periodically helps to spot any inaccurate or incomplete information or suspicious inquiries that might serve as a warning sign of potential identity theft. And contrary to some consumers' fears, checking your credit report regularly will not adversely impact your score.
Federal law requires consumers to be able to obtain one free report each year from each of the three major credit bureaus, Equifax, Experian and TransUnion. Banks and credit card providers often provide credit scores to its customers. Otherwise, you can get a free credit report at annualcreditreport.com.
And if your FICO score is below par, work hard to pay off existing debt and make all payments on time moving forward to help raise your credit profile.