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Key takeaways
- Your credit score has the biggest effect on your car loan rate.
- Payment history and how much of your credit you use make up about two-thirds of your score.
- Credit building products report your payments every month and can raise your score in a few months.
- Checking your own score is free and never lowers it.
Why your credit score matters for a car loan
Lenders use your credit score to estimate how likely you are to repay. A higher score means less risk for them and a lower rate for you. Here’s the same $25,000 loan over 60 months at three rates:
| Interest rate | Monthly payment | Total interest |
|---|---|---|
| 5% | $471.78 | $3,306.85 |
| 15% | $594.75 | $10,684.90 |
| 30% | $808.83 | $23,530.09 |
Going from a 30% rate to 15% saves $12,845.20 in interest on this loan. Try your own numbers in the car loan calculator.
8 steps to build credit before you apply
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Check your credit score and report
Start by knowing where you stand. You can check your credit score for free, and you can request a free copy of your credit report from both Equifax Canada and TransUnion Canada. Checking your own credit never lowers your score.
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Dispute any errors
Look for accounts you don’t recognize, payments marked late that you made on time, and debts that should have dropped off. Both bureaus let you dispute errors online for free. Fixing a mistake is often the fastest way to raise your score.
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Pay every bill on time
Payment history is the most important part of your score, about 35%. Set up automatic payments for at least the minimum on every card and loan. One payment 30+ days late can stay on your report for up to six years.
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Keep your balances low
Try to use less than 30% of your credit limits, and less than 10% if you can. On a $1,000 limit, that means keeping the balance under $300. Paying down cards before your statement date can raise your score in as little as a month.
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Add a credit building product
If you have thin or damaged credit, a secured card or a credit builder program gives you an account that reports on-time payments every month. See the comparison below.
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Limit new credit applications
Each application can trigger a hard inquiry that lowers your score a little for up to a year. Avoid applying for new cards or loans in the months before you shop for a car. When you do shop for a car loan, keep your applications within a short window.
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Keep old accounts open
The length of your credit history counts. Closing your oldest card can shorten your history and raise your utilization. Keep it open and use it now and then so it stays active.
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Save a down payment
A down payment isn’t part of your score, but it makes you less risky to lenders. Even 10% down can help you get approved at a better rate and lower your monthly payment.
Credit building products compared
Every product below reports your payments to at least one Canadian credit bureau, and that reporting is what builds your history. Choose one with a cost you can easily keep up with.
We may earn a commission when you sign up through these links. It doesn’t change the price you pay.
Secured credit card
Secured Neo Mastercard
Guaranteed approval and cashback while you build credit.
- Cost
- Refundable deposit
- Credit limit
- $50 – $10,000 (your deposit)
- Reports to
- Equifax & TransUnion
Details and availability
- No credit check or income requirement (except in Quebec, where a hard check applies)
- Your deposit becomes your credit limit, so you choose how much to put down
- Earn cashback on gas, groceries and purchases at Neo partners
Available in: All provinces and territories
Credit building subscription
KOHO Credit Building
Build credit from the KOHO app for a small monthly fee.
- Cost
- $5 – $10/month
- Credit limit
- Varies by program
- Reports to
- Equifax
Details and availability
- No lump-sum deposit needed. The fee depends on your KOHO plan
- Soft credit check only, so signing up won’t lower your score
- Free credit score tracking in the app
Available in: All provinces and territories
0% credit line
Nyble
A small interest-free credit line that reports your payments.
- Cost
- $0 on the free plan
- Credit limit
- $30 – $250
- Reports to
- Equifax
Details and availability
- No credit check, no interest and no late fees
- Approval is based on your income and banking activity
- On-time repayment can unlock higher limits
Available in: All provinces and territories
Credit builder program
Spring Financial – The Foundation
Build credit at both bureaus while you save $750.
- Cost
- About $66 bi-weekly
- Credit limit
- $750 saved
- Reports to
- Equifax & TransUnion
Details and availability
- No credit check or income requirement
- Much of each payment is set aside, so you get up to $750 back when you finish the 12-month program
- Graduates qualify for Spring’s $1,500 Evergreen Loan
Available in: AB, BC, MB, NL, NS, NT, NU, ON, PE, QC, YT
Credit building line
Kikoff Credit Builder
A $750 credit line used only to grow your score.
- Cost
- From $10/month
- Credit limit
- $750
- Reports to
- Equifax
Details and availability
- No security deposit and no credit check to apply
- 0% interest and no hidden fees
- Autopay helps make every payment on time
Available in: All provinces and territories
Secured card or credit builder: which should you pick?
A secured credit card gives you real spending power, and often rewards, but you need a deposit. A credit builder costs a few dollars a month with little or no deposit, and it’s hard to overspend with one. If you can, use one product that reports to both Equifax and TransUnion, or combine two, so lenders see your history at either bureau.
What credit score do you need for a car loan?
Canadian credit scores range from 300 to 900. There’s no official minimum for a car loan, but here’s roughly how lenders see each range:
| Score | Rating | What to expect |
|---|---|---|
| 760–900 | Excellent | The best rates, including dealer promotions on new cars |
| 725–759 | Very good | Competitive rates from most lenders |
| 660–724 | Good | Prime approval at fair rates |
| 560–659 | Fair | Approval is possible, often at higher rates or with a down payment |
| 300–559 | Poor | Specialized subprime lenders, the highest rates, possibly a co-signer |
Your income, job stability, existing debts and down payment matter too. A lower score with steady income and a solid down payment can still get approved.
How long does it take to build credit?
Quick wins
Paying down card balances and fixing report errors can show up on your next report.
New history
A new credit builder account starts adding on-time payments. New-to-credit Canadians usually get a score around now.
Real momentum
A steady record of on-time payments and low balances can move you up a full credit tier.
Old marks fade
Most late payments and collections fall off your report after about six years, and their impact shrinks long before that.
Credit building FAQ
What credit score do I need to get a car loan in Canada?
There’s no single minimum. Many lenders approve scores in the 500s, but the rate goes down as your score goes up. A score of about 660 or higher usually gets you prime rates, and 725+ gets the best offers.
How fast can I build credit for a car loan?
If you’re new to credit, it can take about 6 months of reported payments to get a score at all. To repair a damaged score, plan on 6 to 12 months of on-time payments and low balances before you see a big change. Products that report every month help you build that history faster.
Will checking my credit score lower it?
No. Checking your own score or report is a soft inquiry, and it never affects your score. Only hard inquiries, made when you apply for credit, can lower it a little.
Do credit builder loans and secured cards really work?
They do when you use them well. They report your on-time payments to Equifax and/or TransUnion, which builds your payment history, the most important part of your score. Missed payments are reported too, so pick a payment you can always make.
Should I get a car loan now or wait until my credit improves?
If you need a car now, you can still get financed with fair or poor credit. Making every payment on time will build your credit, and you may be able to refinance later at a lower rate. If you can wait a few months, a higher score could save you thousands. Use our car loan calculator to compare.
Can a car loan itself help build my credit?
Yes. A car loan is an installment loan, and every on-time payment is reported to the credit bureaus. Over time it adds to your payment history and your credit mix.
Need a car now? You can still get approved.
We work with lenders for every credit score, and on-time car loan payments build your credit too.