Buying a boat can be an exciting adventure, but it often requires a significant financial commitment. Many people choose to finance their boat purchase through a boat loan. However, just like any other loan, there are certain requirements that lenders consider before approving a boat loan. In this article, we will explore the credit requirements for boat loans and provide some tips to improve your chances of getting approved.
Why Your Credit Score Matters When Applying
While it may just be three digits long, your credit score is an important guide for potential lenders, giving them an idea of how well you’ve managed your financial obligations up to this point and how much risk you pose as a borrower. This score, which can range from about 300 to 850 — depending on the scoring model used — takes into consideration factors such as your:
- Amount owed on outstanding balances
- Payment history, including any late payments you’ve made (and how late they were)
- Debt utilization, or how much of your available lines of credit you’re currently using
- Recent credit inquiries, which occur when you apply for new credit
- Credit mix, or the different types of accounts you have
Lenders rely on credit histories, since your financial situation today may not be entirely indicative of how you’re likely to manage accounts in the future. For example, a borrower may have funds available in the bank and have a great income, but if they don’t pay their bills on time or they let their loans default, they probably aren’t the kind of borrower a lender wants.
What Kind of Credit Do You Need to Qualify?
So, what credit score do you need for a boat loan if you want to get approved? Well that really depends on the particular lender you choose.
Most boat lenders will have a minimum credit score that they are willing to accept, which is around 680. At Trident Funding, for example, you’ll need a FICO credit score of at least 600 in order to get approved for a new boat loan. Other lenders may have higher or lower FICO score thresholds, which can also vary based on the size of the loan and even the type of boat you’re trying to buy.
Even if a lender has a minimum credit score requirement, you may personally need a higher score to qualify for your loan. This is often the case if you have a higher debt-to-income ratio (DTI) or want to contribute a smaller down payment toward the purchase.
How Your Credit Score Can Affect the Application Process
When it comes to applying for a new boat loan, meeting your lender’s credit score requirement is the first step. However, this score can affect other aspects of your application — and eventually, your loan — as well.
Your credit score has the ability to influence:
- Whether or not your loan application is approved
- The repayment term length options you are offered (how long you have to pay off your loan)
- The interest rate you’re offered (how much you’ll pay for the loan)
- Your down payment requirement (how much you’ll be asked to initially contribute toward the boat)
- Whether or not you’ll need to add a co-borrower to the loan
For instance, you may get your loan application approved with a 680 FICO score, but you won’t likely be offered the lowest interest rates. You may also be limited to the shortest repayment terms, as you could be seen as a riskier borrower. If you have an 800 credit score, however, you may be offered the best interest rates, longest repayment terms, and even the lowest down payment requirements.
If you’re unable to get approved for a loan on your own, or aren’t being offered the repayment terms you need, adding a co-borrower could be one workaround to consider. By adding a creditworthy co-borrower — such as a parent, spouse, or sibling — you can boost your approval chances and improve your loan term options, versus taking out the loan on your own.
Credit Factors That Affect Getting a New Loan
In addition to looking at your overall credit score, lenders will often analyze the individual factors that make up that credit score when evaluating your loan application. This is to look for red flags and better determine what kind of borrower you’ll be.
For example, lenders may look at how much you current owe on your outstanding balances, such as credit cards, mortgages, and auto loans. If the minimum payments required on these debts accounts for too much of your monthly income, you’ll have a DTI that’s too high. In a lender’s eyes, this represents more risk as you’re unable to pay your accounts in full or may have trouble adding a new monthly payment to the mix.
Your payment history is also important. Lenders want to see that you pay your debts on time, each and every month. (This means that you’ll likely make your loan payments on time, too!) If you have late payments or had accounts that went to collections, a lender may not be as willing to lend you more money.
Lastly, if you have too many recent inquiries on your credit, a lender may wonder whether you’re over-leveraged. While there can be a perfectly reasonable explanation for an influx of inquiries — say you were rate-shopping while refinancing your home mortgage loan — it can also pique a lender’s interest.
In addition to your credit score, any of these factors has the potential to impact the boat loan interest rate you’re offered. The higher your interest rate, the more your loan will cost you in the end and the more your monthly payments will be.
Does Applying for a Loan Hurt Your Credit?
Before choosing a new loan, it can make sense to shop around a bit first. This allows you to not only find the lender that offers the loan limits, repayment terms, and down payment requirements you need, but also ensures that you’re able to find the lowest possible interest rate available to you.
In order to get those rates, though, you’ll need to apply. And this usually involves the lender pulling your credit.
Each time a lender pulls your credit, a hard inquiry is recorded. This inquiry may ding your credit score by a few points and will follow you for up to two years (though it will only impact your score for the first year). So, what if you collect multiple inquiries while rate shopping for a new loan?
Well, your credit score will likely take a small hit, and each of those inquiries will be recorded by the credit bureaus. However, many credit scoring models allow for rate shopping in their formulas, and you aren’t penalized when applying through multiple lenders.
Take the FICO 8 Score, for example, which is the most widely-used credit scoring model available. With this scoring formula, borrowers have a 14-day window in which they can rate shop to find the best loan. All of the related inquiries during that time period will combine to count against their score as one.
Even if you apply through 10 lenders during that two-week window, your credit score only gets dinged once. Yes, each these inquiries will still show up on your credit report, but your score won’t take a nosedive as a result. So feel free to shop around a bit when applying for a boat loan, so you can find the best possible terms and rates.
How to Boost Your Credit Before Applying for a Loan
Once you know the credit score needed to get a loan, and understand how your score affects both loan approval and the terms you’re offered, how can you go about improving your own score?
Your first step is to check your credit. Consumers are able to request at least one free copy of their full credit report every year from each of the three credit bureaus (Experian, Equifax, and TransUnion). To do so, you can visit AnnualCreditReport.com, which is the only government approved website for free credit reports (so watch out for lookalikes!).
There, you’ll be able to request a comprehensive report of your credit, including most of your reported activity over the last seven years. Here are some tips to raise your credit score:
- Checking the report(s) for errors. Look them over carefully to see if you find any discrepancies regarding your balances, accounts you don’t recognize, inquiries you didn’t approve, or late payments that were actually made on time. If you do, be sure to file a dispute with both the reporting bureau and the creditor in question. You may need to provide them with evidence, such as a receipt from your on-time payment.
- Identify where your credit utilization is too high. If you are using up too much of your available credit, like on a revolving credit card, you could be affecting your credit score. By lowering those balances, increasing your credit limit, or both, you can quickly boost your score.
- Use a credit boosting platform. There are many different programs designed to help you boost your credit score quickly. Many of these allow you to add your regular bills — such as utilities, rent payments, and subscription services — to your credit report, helping improve your payment history.
You may even want to try all three, depending on where your credit score currently stands and the boat loan credit requirements set forth by your specific lender.
Before a lender will approve your loan application, you’ll need to meet their eligibility requirements. One of the biggest factors is your credit score, which shows lenders how creditworthy you are how likely you are to responsibly manage your accounts in the future.
Each lender has its own credit score threshold, which can be affected by things like your down payment amount, the type of boat you’re buying, and how much it costs. The higher your credit score, the better the loan terms you’ll likely be offered and the less your loan will cost you in the end.