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 service that monitors your credit. 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.
Bring Documents Showing Financial Stability
If your credit score is low, potential lenders are less likely to see you as a risk if they can see you have stability in other areas of your financial life. Bringing documentation like your most recent pay stubs and proof of address to show lenders how long you have lived at your current address and worked at your employer could help you seem more reliable.
Dont Be Confused By The Invoice Price
Most people know not to pay the MSRP of a car, but did you know that you shouldnt offer to pay the invoice price either? A dealership will typically get even more discounts off the price they actually paid to purchase the car from the manufacturer. This includes dealer holdbacks and other dealer rebates and incentives. Dealers will never tell you that once they sell a car they will get a percentage back from the manufacturer because they dont want you to use that information to negotiate a lower price. Dont promise to pay any amount right away until youve spoken to your dealer and gotten the best possible price.
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Which Credit Score Is Used For Car Loans
Through April 20, 2022, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.
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Lenders can choose which credit score they want to use when evaluating your auto loan application. Different lenders might use different scores, and even the same lender might test several credit scores. As a result, you likely won’t know exactly which credit score the lender will see when you apply for an auto loan.
Consider A Down Payment Is Key
It might be difficult to have extra cash on hand when youre trying to pay bills to improve your score, but even having a few hundred dollars to put down for a car can help the lender approve you for financing and lower the upfront costs.
The ability to put a down paymentan upfront partial paymenton a vehicle signals to the dealer or seller that you are serious. Depending on how much you can put down, it can help reduce the overall size of the loan, upfront taxes and fees, your monthly payment, the length of the loan and/or the interest rate.
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Whats Expected In 2022
Based on the trends outlined in Experians Q2 report for 2021, prime borrowers with good credit in 2022 may continue shifting away from used vehicles in favor of new vehicles. Experians research also shows that subprime financing remains at near-record lows, with just a fraction of car loans in 2021 going to consumers in the deep subprime risk category. These trends could continue into 2022.
Go To A Dealer That Specializes In Buyers With Poor Credit
If you cannot qualify for a loan at a traditional dealership, you may be able to get financing from one that specializes in buyers with poor credit. Typically advertised as buy here, pay here dealerships, they offer in-house financing for used vehicles.
However, these dealers tend to charge very high interest rates to offset the risk of lending to borrowers with lower scores. As of 2020, the average interest rate offered by independent dealers to deep subprime borrowers was 21.31%.
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Auto Lenders Most Commonly Use The Fico Score 8 System
When you submit your credit information to a dealership or directly to a lender to apply for an auto loan, the information they pull from the credit bureaus is typically under the FICO Score 8 scoring model. The FICO Score 8 model follows a lot of same credit-granting guideline as other models, like the VantageScore system, but its more sensitive to certain aspects of your credit such as:
- High credit card usage: If you high balances on your credit cards
- Isolated late payments: If you were at least 30 days late with any of your payments
- Amounts owed on your credit lines
- Payment history
- New credit inquiries: Although new credit inquiries dont weigh heavily on your FICO score, they are taken into account.
While the differences between the FICO Score 8 and the other systems like the VantageScore might seem minimal, auto lenders have historically used the FICO Score model 8 for loan approvals, so that one would be better for you to keep in mind.
Regular Credit Score Vs Auto Credit Score
Your regular credit score, commonly known as your base credit score, is a general credit score that takes into account any type of credit account that you have when evaluating your risk as a borrower. On the other hand, your auto credit score measures your creditworthiness as it specifically pertains to auto loans. Again, although your regular credit score assigns you a credit score on a range of 300 to 850, an auto credit score assigns you a credit score on a range of 250 to 900.
The auto credit score was specifically designed to better predict the likelihood that a person will repay his or her car loan on time. Many experts believe that your auto credit score places a lot of weight on your history of handling auto loans. So, if you have a good history of repaying auto/car loans on time, you should have a good auto credit score.
Although auto credit scoring models do not disclose the factors they look at, here is a list of things that could have a large impact on your credit score:
- Payment history on auto loans
- Previous late payments on auto loans
- Previous vehicle repossession
- Whether youre like to file bankruptcy
- Length of credit history
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What Is A Credit Score What Should It Be To Get The Lowest Apr
First let us examine what a credit score is. The credit bureaus and lenders have come up with scoring systems that examine your credit history, and produce a credit score typically ranged from just under 300 to around 900, the higher the number, the better credit risk you are. This is like taking your financial pulse.
Each of the big three credit bureaus Experian, Equifax and TransUnion all have their own secret sauce of scoring models that look at your overall credit history to determine your score. The bureaus also tell you that they are giving you your score for informational purposes only, and they also tell you that lenders may calculate a different score than the one you get from the bureau.
Remember those utility bills that you were 30 or 60 days late paying years ago? Now it is all coming back to bite you in the butt, by lowering your credit score. You may have forgotten about your old past debts that you ran out on, but your creditors and the credit bureaus did not forget. They have painfully good memories.
Lenders use your score to determine whether you are a good risk for paying back your debts or if you are a bad risk. Folks with credit scores at about 800 will always pay the lowest interest rates. If you have shady credit or if you run huge credit card balances or missed a few payments over the years, your score could be in the mid-500 range, not so good.
Below are the generally assigned categories for your credit score:
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.
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Don’t Overthink Your Credit Scores
While your credit scores can be important, there are three reasons that it makes more sense to focus on general healthy credit habits rather than a specific score:
Building a positive credit history can help increase all your credit scores, and you won’t need to worry about which score the lender uses.
Getting Approved For A Car Loan
Most dealerships and auto lenders can tell you fairly quickly whether or not youll qualify for a loan, especially if youve already prepared your financial information before walking onto the car lot.
Still, going into a dealership with a preapproved letter from your bank or credit union is among the best strategies for buying a car with bad credit.
If you cant get preapproval or need financing at the dealership, carefully look over the terms, conditions and fees before signing the loan. Not every auto lender through a dealership is fully regulated by the federal government like a traditional bank or credit union, so take your time to look over the terms.
And dont be afraid to walk away if the terms seem too costly or feel like a gotcha moment. There is often another auto dealer or lender nearby that will also work with bad credit.
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Checking Your Own Credit History Does Not Lower Your Score
Many people erroneously think that checking their own credit history will somehow drop their score. This happens only if you apply for credit and the lender runs your report. You can get your own score as many times as you want and it won’t drop.
We have even had a few car dealers tell people not to run their own credit report, because “it will lower your score.” That is a lie and a scam, and probably skirting the Truth In Lending Act.
Of course they will tell you that lie, some dealers don’t want you to know that your score is really higher than the dealership is telling you, so that they can charge you a higher APR on the car loan.
The laser printer is mightier than the sword and when they print out that low score of 560 off their computer, it’s pretty hard to argue that fact with them unless you pull out your own report showing 720 on your way out the door.
Here are a few closing points for you to remember:
- Time heals all wounds. The longer your credit history, the higher your score
- Charge offs and late payments drop off your credit history after 7 years
- Bankruptcies can stay on your credit history for 10 years
- Don’t apply for loans during a dispute with a credit bureau
- Some lenders might only report your history to one of the three credit bureaus
- Your credit score can be different from today to tomorrow
- Car dealers and other lenders often run a different type of credit score than you
- Car dealers credit scores will be run at different times than yours
Can I Still Get An Auto Loan With Bad Credit
Yes, credit is a major factor in getting an auto loan, but you should also keep in mind that most dealers really want to sell you a car. They’re often willing to work with you in order to do so. Nerdwallet points out that, “…at the end of 2017, the average credit score for a new-car loan was 713, and 656 for a used-car loan, according to an Experian report. But nearly 20% of car loans go to borrowers with credit scores below 600, according to Experian. Almost 4% go to those with scores below 500.”
While you’ll likely be able to get a vehicle loan with less-than-stellar credit, it might have a pretty significant impact on the maximum loan amount, the loan term, or annual percentage rate that you receive. So the worse your credit is, the higher the rate, longer the monthly payment schedule might be, and the less money you might be able to borrow towards your new vehicle.
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The Process Doesnt Have To Be Difficult
No one likes the process of buying a car and guess what? Dealers dont want it to be that difficult either. To make it as painless as possible do your research beforehand and know what other dealerships are charging for the car you want to buy. If you want to know what a great price is, youll have to know what a bad price is. Knowing that there might be some competition for your business could possibly make your dealer offer a more competitive price.
Check out how dealerships are screwing Canadians overs.
If youre really arent into haggling then you can always look for a dealership that works to be transparent with its customers. Some dealerships find that if they are up front and honest with potential buyers then they are more likely to make a sale. Not all dealerships work this way so its up to you to find a dealership that best suits your situation.
Watch out for these dealership hidden fees.
Shoot For The Moon With Your Credit Score
Don’t just work your score up to 700 and stop, thinking you are fine you still have work to do. With the difference between your score and the dealer’s calculated score, you need as much insurance buffer as you can get.Does a baseball team who is ahead by 10 runs put down their bats? No way, you need to keep on going, the fun is just beginning. I treat it like a sport repairing your own credit and bumping up your score.
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Purchase A Used Car From Car
When you purchase from Car-N-Credit, we dont rely on your credit score like other dealerships. We look at the bigger picture. Our financial team can help you get into a used car that fits your budget and needs. Contact our friendly staff to see how we can help you get into a used car. We offer a variety of loan options to customers located within 60 miles of our dealership. Our wide selection of vehicles makes it possible for you to find a car that works for you. So, come on down to our dealership in Piqua, Ohio and browse our inventory, or call us today at 773-0895 for a bad credit car loan!
Most Lending Institutions Require At Least A 600 Credit Score To Approve An Auto Loan Without A Downpayment
However, it is possible to purchase a vehicle with a score a score as low as 400. There are a lot of factors that determine your loan eligibility and what interest rate you are eligible for. These factors include:
- Are you paying money up-front. How much is the downpayment?
- Have you had past auto loans and did you pay them well?
- How much of a percieved risk is the bank taking to extend you this loan?
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What If I Dont Want To Pay For My Fico Auto Scores
You can monitor your TransUnion auto insurance score for free on Credit Karma, along with your free credit reports and VantageScore 3.0 scores from TransUnion and Equifax. Just remember that your auto insurance scores are not the same as your credit scores, and a lender may not use your auto insurance scores.
Even if you cant see your exact FICO® Auto Scores, reviewing your credit reports means having access to your auto loan history and can help you determine what you can do to improve your credit.
Car Dealers With Bad Credit Car Loans
Take to the streets with the car you want. Our car dealers help you get where you need to be with the right vehicles. It should not feel awkward to go car shopping for the right car. But, for many people, car shopping is a challenge because of their credit scores. Your credit score follows you where you need to go. It can make a significant impact on your finances, making it hard to get cars, houses, or other large purchases. Do not let your credit score hold you back from getting the cars you want. We are here to help you with buying a car with bad credit. We at Toyota Direct are your car dealers with bad credit car loans that help you. We want to ease your car search by getting you the opportunities you want for your car and your car loans. Let us help you with buying a car with bad credit today. We are the car dealers with bad credit car loans that help you today. Come to Toyota Direct and explore the car dealers with bad credit car loans.
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