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.
What Credit Score Do Car Dealers Use
Reviewed by Lauren Bringle, AFC®
When youre planning to buy a new vehicle, its important to prepare for the purchase long before you step into the dealership.
For starters, you want to make a budget. It doesnt hurt to know the type of vehicle youd like to buy, too, and the average cost of insurance that goes along with it.
But most of all, its important to review your credit before you apply for an auto loan.
Your credit score has a big impact on whether you can qualify for auto financing. Your credit score also affects how much youll pay for your loan if a lender approves your application.
Yet before you set off to check your credit reports and scores, theres something you should know. The credit scores you find online probably wont match the score an auto lender uses to evaluate your car loan application.
In fact, when you finance a vehicle the lender may use a credit score thats completely different from anything youve seen before.
Re: Auto Loans Based On Vantage Score
Thanks for sharing the site. I ended up playing around on it for 30 minutes. Most of the vehicles would add $700-$800 for transportation from the south east.
wrote:
I know this brought up occasionally on the forum about if any lenders actually rely on the vantage model when making lending decisions, well folks I have found one! Carvana, it is like Beepi but not as mainstream as Beepi appears to be. Other perks of using this service is it will show you what rate you get for a specific vehicle all based on a soft pull. The loans are through a third party but for those with not so great FICO scores and high Vantage scores this may be a plausible option if they are in the market for a car. It is mainly based in the SE region Texas through Georgia, but it appears they deliver nationwide albeit for a fee. The lowest rate they offer is 2.9% which is meh, but for those select few people with high vantage and low FICO they are definitely worth a look! Happy holidays!
Good looking out. How did you find this? Seems like a smaller autotrader with an easier path to financing.
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Which Credit Score Do Auto Lenders Use
4.9/5FICOScoreFICOauto lendersauto lendersuseFICOScoreauto
Just so, what credit score do car lenders use?
FICO offers a FICO Auto Score that’s specific to auto lenders and not sold directly to consumers. The FICO Auto Score uses a 250 to 900 range, which means the auto lender’s credit score could be much higher or lower than the score you check.
Secondly, can I get a car loan with a credit score of 600? They normally qualify for competitive interest rates on their loans as well. However, even consumers with or less can get approved for an auto loan. Therefore, if a consumer finds that their is 600 or lower, they should look for a dealership that handles special financing.
Also question is, do banks look at TransUnion or Equifax?
Banks and other lenders use credit scores to gain an analytics-based view into an individual’s financial picture. But which credit bureau is the most used? There are three major credit bureaus in the U.S.âEquifax, Experian, and TransUnion.
What credit score does Carvana use?
Carvana has no minimum however, you must make at least $10,000 annually and not have any current bankruptcies. Car shoppers can get pre-qualified financing offers with a soft inquiry, which won’t lower their , making it good for rate shoppers.
Fico Auto Scores Vs Other Fico Scores
The most significant difference between your FICO® Auto Scores and base scores is in how your credit history is weighted. Base FICO® scores take into account your overall credit information as laid out in your credit reports, including your credit card debt, payment history, student loans, etc.
The FICO® Auto Score model also takes these elements into consideration, but assigns more weight to auto-loan-specific risk behavior.
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Which Credit Bureau Is Most Used For Auto Loans
Buying a car should be an adventure: You feel joyous at the prospect of getting a new car and excited to see how the vehicle will perform on the open road. But when you have to add your credit score to the entire calculation, it can suddenly seem like a lot less fun. What do car dealers look for in credit reports? Which credit score will the car company check? Which credit bureau is most used for auto loans?
Suppose you subscribe to a credit monitoring service. In that case, you already have enough help to get the answers to the questions above. But, if you are buying a car on your own, youve got your work cut out, as there is a lot of seemingly conflicting data out there.
For example, there are multiple credit scores on one side and the FICO score on the other. FICO scores themselves have several versions. Then, there are the three credit bureaus. Each one uses its score system, which makes an auto loan credit check sound like rocket science. Not to mention that car dealers might be in contact with all three credit agencies or perhaps just one of them when assessing your creditworthiness.
Worry not. Weve gathered all the tips and tricks youll need to turn those credit checks to your advantage. By the time youre done reading, your expertise will rival that of the auto loan companies.
Why Is Your Credit Score Important For A Car Loan
When buying a car, having a high credit score will help you in many ways. When it comes to the best auto loan rates, they are generally reserved for those who have a good credit score.
Before heading to a car dealership, you must be prepared. Make sure you check your credit report first, so you know exactly what to expect. This way, if your credit score is low, you can give yourself more time to decide on whether youd like to buy a car now, or with a better credit score. In time, you can then benefit from better rates and get the best deal on your new purchase.
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How Do Lenders Use New Fico Scores
When a new FICO Score version like FICO Score 10 or FICO Score 10 T is developed, we release it to the market.
From there, each lender determines if and when it will upgrade to the latest version. Some lenders make the upgrade quickly, while others may take longer. This is why some lenders are currently using different versions of the FICO Score. As an example, FICO Score 5 at Equifax is the FICO Score version previous to FICO Score 8 at Equifax.
Other FICO Score versions, including industry-specific auto and bankcard versions, are also included in the FICO Score products on myFICO.com so you can see what most lenders see when looking at your scores.
The Fico Auto Industry Option
What gives is that most auto lenders that use FICO credit scores use a different variety of FICO score called the FICO Auto Industry Option score. Lets call it the FICO Auto Score, for short.
FICO develops a variety of credit scores including these semi-customized scores referred to as Industry Option scores. These scores are used by lenders in the auto, credit card, and installment industries, which pretty much covers everyone.
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Fico Credit Scores Are Meant To Help Lenders Determine How Risky You Are As A Borrower But Some Scores Are Better Tailored At Calculating How Risky You Are For Specific Credit Products Like The Auto Loans
To determine FICO® Auto Scores, FICO first calculates your base scores, which are the traditional you might be more familiar with . Then FICO adjusts the calculation based on industry-specific risk behavior to create tailored auto scores. These scores help creditors predict the likelihood that youll make auto loan payments as agreed. The result is your FICO® Auto Scores, which range from 250 to 900 points.
What Is The Auto Insurance Score
Your Auto Insurance Score represents your risk potential as a driver. The AIS is typically assigned by insurance companies in order to assess the likelihood of your filing a costly claim.
Although your driving record and auto claims history are both considered in the calculation of this number, neither is surprisingly the highest priority. Insurers use your credit report as the key source to figure out your AIS. This may seem counterintuitive, but studies support the practice of correlating driving risk and credit history.
The main point that insurers are concerned with is the amount of financial liability youve taken on in the past. Unlike mortgage companies, they dont care as much about your current income or job history. Taking all this information into account, your credit score can be a major predictor of your AIS.
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Which Credit Score Do Lenders Actually Use
Consumer Financial Protection Bureau Director Richard Cordray speaks during a a hearing in Denver… where he discussed his agency’s proposal on arbitration, in Denver, Colo., on Oct. 7, 2015.
There was some big news in the world of credit scores this week. The Consumer Financial Protection Bureau ordered TransUnion and Equifax to pay more than $23 million in fines and restitutions “for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers.” I’ve used these and the other credit scoring services described below extensively, and these services are advertisers on my personal finance blog, so I was particularly interested in the CFPB’s orders.
The orders explained that the credit score models most often used by lenders are those developed by Fair Isaac Corporation. You may know these scores by their common name, FICO scores. In contrast, the scores offered by TransUnion and Equifax used proprietary scoring models, sometimes referred to as “educational credit scores.” The name comes from the idea that these scores help educate consumers about their credit scores generally.
The problem, according to the CFPB, was that TransUnion and Equifax misled consumers by suggesting that the educational credit scores they offered were the same scores lenders used to make credit decisions. According to the CFPB, however, these scores were “rarely used by lenders to make credit decisions.”
Many Credit Scores
- Equifax Beacon 5.0
How Will Your Credit Score Affect Your Auto Loan Rates
Rather than declining borrowers with low credit scores, auto lenders will raise the annual percentage rate to adjust for the added risk. Although you may not need to raise your credit score to get a loan, it can be worth your effort in order to lower your average auto loan rate.
Because borrowers with lower credit scores are a sign of negative borrowing practices, a lender will adjust average loan rates to cover their risk. The difference between an interest rate for a candidate with good credit versus bad credit can be significant. Those with exceptional history may secure rates of less than 3%, while those who have struggled may pay over 15%.
The good news is that you may be able to use your auto loan to improve your credit score. By keeping up with payments and repairing your credit, you can consider refinancing down the road to get a better interest rate.
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Benefits Of Credit Scoring Models
Speed is the major benefit to consumers of having credit scoring models. Lenders can evaluate thousands of applications quickly and impartially. Decisions on mortgages, car loans or extended limits on credit cards can be handled in days or even minutes.
In fact, the consistency of data in scoring models allows for financial statements, credit ratings and credit account statuses to be evaluated quickly and accurately. It also reduces the possibility for human error. This helps customers and their orders get processed more quickly.
On the flip side, it reduces bad debt losses for companies. Otherwise, those companies could make bad decisions in whether to extend credit to a customer. Businesses can specify the factors they want considered in the credit decision process. They know almost immediately if they are dealing with a high-risk or low-risk customer.
That has allowed the businesses to operate more efficiently and reduce the cost of vital services like mortgages, car loans and credit cards.
Credit scores allow consumers access personal loans and help financial institutions control allocation of risk and costs with their customers. Businesses can better execute transactions with customers when they have access to objective information for evaluation of a customers creditworthiness.
The Problem With Subprime Auto Loans
If you have a lower-than-average credit score, you might find yourself languishing in the subprime market. On the one hand, consumers with bad credit can still buy vehicles using subprime loans, but on the other, subprime loans are notoriously risky.
Subprime loansalso known as near prime, non-prime, subpar or second-chance loanscome with sky-high interest rates, voluminous fees and and often, longer payment terms.
Before you opt for a subprime loan, consider your options. Can you wait a while and improve your credit, for instance? Does the dealership offer in-house financing, and if so, do you qualify for that option? Subprime borrowers frequently find themselves under much greater financial pressure than prime borrowers, so dont sign on the dotted line unless you absolutely have to.
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How Different Are The Two Scores
Dont get me wrong, your auto score isnt going to be wildly different than your generic FICO score.
Youd be safe to assume that the two score varieties will be within plus or minus 15 to 20 points, but that can vary. Of course this is all academic if youve got fantastic credit reports.
Those are going to yield a great credit score regardless of the score type.
This rule is going to hold true not only for FICOs generic score, but also their industry specific scores.
And, its going to hold true for every other credit scoring system on the market, like the VantageScore credit score, which I wrote about for Mint here.
Its also going to hold true for the free scores available from the variety of websites that give them away, like www.CreditSesame.com. The better your credit reports the better your scores, regardless.
Unlike sites that allow you to check your credit report for free, FICOs industry specific scores are not available to consumers on any website for any price.
In order to get those youll just have to keep relying on the Finance and Insurance Manager at the local auto dealership.
What Does That Mean For You
In general, it means that although different lenders use different measures, people with exceptional credit scores may qualify for the lowest rates, while people with lower credit scores will often qualify only for loans with higher rates.
High Credit Score Low Interest Rate Lower Credit Score Higher Interest Rate
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What Is A Good Credit Score For An Auto Loan
While lenders can set their own standards when assessing an individual’s FICO score, generally accepted standards across the board for multiple lenders. According to Experian, “higher scores represent better credit decisions and can make creditors more confident that you will repay your future debts as agreed.”
So what’s a “good” credit score? Anything above 700 will at least allow borrowers to be in a good position to obtain auto loans. Once you build your score over 800, you can pretty much be assured of your excellent credit and an ace up your sleeve when negotiating your annual percentage rate and your loan terms. However, if you credit score is higher than 600 and lower than 750, you’re in line with most borrowers. The average credit score in America is 657.
How Do My Credit Scores Affect My Car Loan
Your credit scores can affect your ability to get a car loan and the interest rate and terms you may be offered.
Before you begin car loan shopping, its generally a good idea to check your credit scores and understand how they can influence the terms you get from auto lenders for a new- or used-car loan. This is also an opportunity to check your credit reports for errors, which could bring your credit scores down.
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Before You Go Shopping
If you have time to delay your car purchase, work on building your credit. That means:
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Paying bills on time. A payment that goes 30 days past due can devastate your score, so pay at least the minimum on time.
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Keeping credit card balances low compared to your credit limits. How much of your limits you’re using is called your credit utilization, and it has a big effect on your score. You can try a number of tactics to lower your credit utilization in order to bump up your score.
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Avoiding applications for other credit within six months of applying for a car loan.
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Keeping credit card accounts open unless there’s a compelling reason to close them. Closing cards reduces your overall credit limit, which can hurt your credit utilization.
If you end up with a higher-rate loan than you wanted, keep an eye on your scores. You may be able to refinance your auto loan at a lower rate after youve made on-time payments for six to 12 months.