How Credit Scores Are Factored
Most consumers don’t realize that multiple credit scores exist for each individual, a fact that credit-scoring companies generally avoid explaining to their users. It’s important for consumers to know exactly how their credit scores are being issued and rated, so as to avoid fraud and false advertising.
In 2017, the Consumer Financial Protection Bureau ordered TransUnion and Equifax to pay more than $17.6 million in restitution to consumers for deceiving them about their personal credit scores. TransUnion and Equifax had each advertised that the credit scores they issued would be the numbers that lenders would use when making decisions, but this was determined to be a lie. The two credit bureaus also had to pay $5.5 million in fines to the CFPB.
The credit score given by providers like and are generic, educational credit scores, meant to give consumers an approximate idea of where their credit stands.
According to the CFPB, credit scores are based on the following factors:
- Your bill-paying history
- Whether you have had a debt sent to collection, a foreclosure, or a bankruptcy, and how long ago
Unfortunately, none of the credit scoring models have a breakdown of the exact factors that auto lenders use, but it’s safe to assume that these auto scores place more weight on variables that signal potential loan default.
For example, auto scores look for:
What Is Fico 8 Auto Score
Fair Isaac Corporation is a publicly traded data analytics company. Youre most likely familiar with their FICO score. Your FICO score is a representation of your credit worthiness.
FICO offers specific products and solutions for car dealers and auto loans. Their product is called Auto Score 8. As you can see here from FICOs promotional materials, Auto Score 8 is meant to help dealers, Improve accuracy and speed of decision making. Increase your automatic approval rate with better customer knowledge, the most proven and predictive credit-risk scores, and a holistic understanding of the customer relationship over time. To answer the question What credit score do car dealers use? We need to dig into Auto Score 8, as it is in the industry standard credit score for auto loans.
Similar to your normal FICO score, you can request a copy of your current Auto Score from FICO for a fee.
What you really need to understand is that your Auto Score is calculated similarly, but differently than your traditional FICO score. The score range for the Auto Score is 250-900 . FICO promotes that Auto Score will help dealerships and lending institutions in five distinct ways:
Here Is How The Dealer Low Balls Your Score
Assume your score is 794, even if your dealer tries to shave 75 points off your score, that still leaves you over 700. You should still enjoy the lower APR rates. This is why you have to aim high, you want that strategic buffer. I’m untouchable no matter what they try. Many of our visitors exclaim to me their score is 700 and ask why they are not getting the best interest rates.
Well folks, I am not satisfied with a score of only 700, because we know some dealers will try to chisel 75 points off your number, downgrading you from the good category down to 625, which is in the fair category. We have heard from our visitors who just ran their own credit score and got 700 or more which is good.
Then the dealer runs their Auto FICO score, which focuses on their previous car loan exposure . This score often comes in lower, so the dealer uses this to charge them higher rates.
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Date: December 13 2018
Driving a vehicle whether new or used is an enormous responsibility. Thats why when you see other drivers on the road that do not seem to take driving seriously, it can be downright annoying and even deadly. Many of these annoying drivers are responsible for having a near miss or accident or are the cause of road rage. We all have a list annoying habits of drivers. Read more for the top annoying habits often mentioned.
What Credit Score Do You Need To Get A Car Loan
Think you dont have a good enough credit score for a car loan? You might be pleasantly surprised. Car dealerships arent shy about their desire to sell you a shiny new ride, even if your credit score is on the low side. You might end up with a higher interest rate on your car loan than average but you can always refinance it later onafter the loan helps you build your credit score. Heres a quick look at everything you need to know about credit scores and applying for a car loan.
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What Info Is Needed To Fill Out An Auto Loan Application
You will be asked to provide information, including your name, address, Social Security number, employment and income data, existing debts, and other financial data. When you go through a car dealer network, the prequalification step uses a subset of this information combined with data gleaned from a soft pull of your credit history from one or more credit bureaus.
A car loan application will require your basic personal info as well as your income and employment details.
After you prequalify, the dealer will submit a hard inquiry and collect additional information before completing the offer. Beyond your bad credit score, a lenders finance department typically looks at past defaults, write-offs , collections, repossessions, and bankruptcies. These need not be fatal, especially on secured loans like those for automobiles.
Changes In Your Credit Report Information
The information in your credit report changes often, which means your from one day to the next. If there are a few days between the time you check your score and the lender checks your score, your credit score could reflect some changes. If your credit history is good, your credit score will reflect that, no matter which credit-scoring model the lender uses to approve your loan application.
Here are a few tips for making sure your FICO Scores remains the same:
- Make payments on time
- Keep credit card balances low
- Open new credit accounts only when needed
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What Credit Score Is Used When Buying A Car
Different car lenders check different credit scores, so you won’t know for sure which one they will look at when determining your auto loan application. Your best bet, however, would be to check something called an industry-specific score.
FICO provides industry-specific scores that consumers can refer to when making certain purchases like a car or home. Just like a standard credit score, your industry-specific score helps determine future loan terms and interest rates.
The FICO Auto Score considers your usual credit behaviors but puts more emphasis on how you’ve managed auto loan payments in the past. It considers things like: have you consistently made your loan payments, and on time? FICO Auto Scores range from 250 to 900 and have several versions, including FICO Auto Scores 2, 4, 5 and 8. The easiest way to check all four FICO Auto Scores at the same time is through FICO’s credit monitoring service.
Knowing your auto-related credit score can be useful when financing a car, since it can affect your loan terms and rates. Any increase in your interest rate can lead to a higher monthly payment and paying thousands of dollars more over the course of a loan.
How Does Your Credit Score Affect Car Finance
Your credit score reflects your credit history and can affect:
- whether youre approved for car finance
- what options are available to you if you are approved, and
- the interest rates youre offered.
The higher your credit score is, the better your chances of approval and with lower interest rates. This is because a high credit score indicates that you are good with money and are therefore a low-risk, reliable borrower.
If you have bad credit, on the other hand, your finance options may be more limited. And If youve never taken out a or a loan before, you may struggle to get accepted for car finance. This is because youll probably have whats called a thin credit history which means lenders are unable to see how good you are at managing your debts.
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What Else Should I Know Before Buying A Car
Avoid dealerships that advertise no credit check or buy here, pay here. These dealerships specialize in sales to buyers with poor or no credit and make their own in-house loans.
According to the CFPB, you may not only pay high interest rates to places that specialize in buyers with poor credit, but you may pay thousands of dollars more for your car than you would elsewhere. If these are the only dealerships where you can get a loan, consider walking away.
If your credit score is less than 500, you may be better off getting a car you can afford to buy outright with cash, Khanna said. You can always get a nicer car when your credit improves.
While comparing car loans, remember to pay attention to the total cost of financing your car and be aware that the interest rate and the APR are different. You can expect your APR to be higher than your interest rate, because APR will include interest rate plus any fees the lender charges.
You have plenty to think about when youre shopping for a car. You shouldnt have to worry about your loan at the same time youre checking out features and searching car lots. Get a head start on financing before you go shopping, and youll have one less thing to worry about while you test drive your next car.
Besides The Impact To My Fico Score Are There Other Risks To Having A Dealership Check My Credit History
It isn’t a good idea to divulge personal information unless it is necessary. There is always the chance someone could take your Social Security number and other personal information and use it to access your bank or credit card accounts. So, despite his explanation of why dealerships do what they do, Cutright advises consumers to decline early invitations to run your credit.
“Only allow them to run your credit when you are certain you are interested in buying a car,” he says.
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Date: October 18 2018
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Car Loan Rates By Credit Score
Its smart to have some idea what dealers will see when they check your credit profile by checking your free credit score. You can also buy your FICO automotive score through that company’s website. That specialty score gives more weight to how you have repaid car loans in the past. Many lenders use auto-specific credit scores that weigh past car-loan payments more heavily.
Someone with a score in the low 700s might see rates on used cars of about 6.05%, compared with 17.78% or more for a buyer scoring in the mid-500s, according to the data from Experian.
On a $20,000, five-year loan, thats a monthly payment of about $387 for the buyer with better credit versus $505 for the buyer with bad credit. The buyer with better credit would pay about $3,222 in interest over the life of the loan, while the buyer with lesser credit would pay $10,329. Plus, in most states, bad credit can mean higher car insurance rates, too.
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What Do Lenders Look For In A Credit Score
In short, lenders want to get paid. The dealership or the bank or credit union are trying to assess the likelihood that you will be able to pay them back. They do this by performing a risk assessment based on your credit history and your current finances, largely informed by your FICO credit score. This score is based on information from your credit report and your current monthly payment plan of any existing credit sources. Five main components comprise your credit score, each with a different associated weight.
What Credit Scores Do Car Dealers Use
It’s no secret that the overwhelming majority of auto lending decisions are based on FICO Scores. However, not as well understood is that most auto lenders pull FICO Auto Scores, an industry-specific version of the FICO Score tailored to be a better predictor of paying your auto loan on time. Similar to the broad-based FICO Scores, a history of paying as agreed, using available credit wisely, and only applying for credit when needed will typically result in a higher FICO Auto Score.
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Improve Your Credit Score Before Buying A Car
If you check your credit scores and think it might be best to work on your credit before taking out an auto loan, here are some suggestions for improving your credit:
These actions could improve all of your credit scores, which can make it easier to get approved for an auto loan with a favorable rate.
What Apr Can You Expect Based On Your Credit Score
The higher your credit score, the better the auto loan deal you can get. Thats because if you have a proven track record of borrowing money and paying it as promised, the higher your credit score is and the lower the risk you are to lenders. These lenders might even compete with a bank or credit union for your business by offering you a lower interest rate loan.
If your payment history on previous loans is sketchier, however, youre considered a riskier bet in the eyes of prospective lenders. They may think you could quit paying and that they would ultimately have to take steps to collect or repossess the vehicle. In return, lenders expect compensation for extra risk in the form of higher interest rates.
This chart, based on APRs for closed auto loans by credit score on the LendingTree loan platform in 2020, illustrates how your credit score can affect what you pay to finance your car:
If you have poor credit a score of 580 or lower your best option might be to find a cosigner with a better financial track record. Note that a cosigner is responsible for the debt if you default, so make sure the car payment is within your budget to protect your relationship with whomever you ask to cosign. For more in-depth guidance, read our article on how to get a car loan with bad credit.
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Why Dealers Dont Care About Your Online Credit Score
Ultimately, the next time youre at a dealership and you happen to flash them your Credit Karma score after they pull your credit, dont be surprised if they dont bat an eye at it. The scoring models are different and the score that they pull is more in line with what the actual lenders are looking at in order to prove that youre creditworthy enough to lend a large sum of money to.
What Credit Score Is Needed To Buy A Car
If you’re thinking about buying that next car, you might be wondering how your current credit score can affect the process. The math is usually quite simple: A higher credit score means a lower Ithaca, Trumansburg, and Watkins Glen interest rate.
What kind of credit score do you need to buy a car? Everyone’s financial situation is different, but Maguire Dealerships can provide some guidance for Syracuse and Baldwinsville motorists. Continue reading to learn more about credit scores and how they impact interest rates.
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Why Is The Salesman Eager To Get Me To Fill Out A Credit Application
The dealership uses the credit report both as a tool to increase sales and a way to protect itself from undesirable or even fraudulent shoppers, according to auto financing and car-selling experts.
Dealers know they have access to the best financing available, and they are eager to share these opportunities with their customers, says Marv Eleazer, finance director at Langdale Ford in Valdosta, Georgia. Almost 80 percent of his customers arrange financing through the dealership.
“The reasons are pretty clear,” Eleazer says. “We generally get rates lower than most customers can obtain elsewhere and the amount we can typically get financed is greater than most local banks or credit unions.” This is a huge benefit to customers who owe more on their trade-in than it is worth, he adds, because sometimes the dealer finance office can add this debt to the new loan.
Chris Cutright, a former car salesman, cites another reason dealers ask for a credit report. When people walk into a car dealership and request a test-drive, the dealer will want to know if they have the ability to pay for a car if they ultimately say they want to buy it. The fastest way to answer that question is to run their credit report.
Further, if a customer “looks kind of rough,” a manager will want to protect the dealership’s cars against theft or damage that might occur during a test-drive, Cutright says.