Many people have applied for an auto loan at a car dealership only to find out that the credit report the dealer sees is different from the credit score they see online. The reason for this is because they see a credit score from an automotive enhanced credit report. Checking your credit report before applying for a loan is always a good way to know how your creditworthiness stands. Over the years, the credit reporting industry has changed the way they look at your credit history.
In the past, the first step a car dealer or finance lender did was to check a person's history of installment credit.
Installment credit is a loan that has installment payments that you agree to pay for a particular time, so the loan is repaid by the completion date. This would include mortgages and auto loans. If you have not purchased anything on credit, you were attributed to a low credit score and classified with others who had some past credit issues and received a bad credit rating.
This is certainly unfair to someone who can pay a loan and has no bad credit marks.
Qualifying for a car loan with the lowest credit score
The credit bureaus are finding new ways to compensate for this. If a person does not have an established credit history, their credit score is generated mostly by their history of paying utility bills, stable residence location, job status and other types of repetitive bills that show a more accurate measurement of a person's ability to pay off a loan.
This is a huge benefit for someone trying to qualify for a loan if they have never had an auto loan up to that point. Subprime car loans can give you a way to build credit with a reliable source of funding.
What is an Auto Industry Option Credit Score?
Credit reporting agencies are now offering something called auto enhanced scoring to auto dealers and auto loan lenders. This type of scoring system looks specifically at any auto loans that an applicant had in the past and then calculates missed or late payments as well as defaulted loans. This score looks very different than your regular credit score because it puts a lot of weight from your past auto loan history on your credit profile.
This automotive weighted credit score is made available to lenders and dealers on request, but this information will not show up on your regular FICO score that you see on your credit report. Thus, the score you get from your credit report is different from the one the auto loan lender sees.
What Is In Your FICO Automotive Credit Report?
The report starts with your basic information that is found on a standard credit report, and then shows any auto installment credit account balances. There is a delinquent account counter for the past and currently missed payments for thirty, sixty and ninety days. Next is a list of past and present loans that are still open showing the amount financed, the amount of your monthly payment and the term of the loan.
Below the list of auto loan history is your FICO Automotive Credit Score. The report will also show official public records, other revolving credit and installment credit accounts, and credit inquiries. You can see a sample report to get a better understanding of how complete the report is.
How does this help the lender?
This particular auto option credit report credit report helps the bank accurately predict if an applicant will be a bad risk judging by their past loan activity. The report correctly shows the lender your experience in handling auto loans. It lists late payments, repossessions, loans that were not paid in full. It also shows if you have had any accounts that were sent to a collecting agency or if you had a car involved in a bankruptcy.
How does this help the borrower?
If a person has some credit issues or a dispute with a loan other than an auto loan, this information can bring your car loan credit score up higher than it would have been with a standard score. This also helps if a person has not established credit yet their auto history will be clear.
What do the car dealers and lenders look at?
The dealer or auto lender will commonly receive six scores. Two from each of the three credit bureaus, Equifax, TransUnion & Experian. Three standard FICO scores and three FICO auto enhanced scores. Dealers have been known to use this to their advantage by choosing the lower credit scores for setting your interest rate. This gives you a higher interest rate on your car loan, and the dealer will make a sizeable amount of money from the lender that will be financing your car. If they choose to use your higher credit score, their profit would be less. Many dealers know this as “the spread.”
How can I see my FICO Auto Industry Option Score?
The auto enhanced FICO report is not easily available to the public. You can, however, purchase your auto credit ratings from myfico.com. When you buy a copy of your credit report, you will receive six credit scores showing two scores from Experian, two from Equifax and two from TransUnion and this will include your Auto Industry Credit Score.
If you have not had an auto loan in the past or if you were careful to make all your payments on time it may not be necessary to get this report. If you do not have any history of bad marks involved with an auto loan than your FICO Auto Credit Score should be higher than the standard score. In turn, you should qualify for a lower interest rate than you normally would.
What can I do to improve my chances of getting an affordable car loan if I have a bad Auto Credit Rating?
If you apply for a car loan at a dealership, you should get your auto credit score first and don't tell them you know what it is. Then after they give you an interest rate, decide if it is reasonable. If you think it is too high, then you could pull out your credit report and see if they are using the correct credit score. Lenders use a tier chart to categorize and set your interest rate. Ask them to see or explain the breakdown categories to see if they are fudging the rate they are charging you.
If you don't know what your auto FICO score is you can ask the dealer if you can see your report but don't be surprised if they will only tell you your score and not show you.
Get Approved with Bad Credit
Negotiating with the car dealer for a good auto loan can be very frustrating. That is why we recommend you get a pre-approved auto loan before you negotiate with the car dealer. This can also keep you from being charged extra fees that the dealer can throw into a car loan.
If you have had a bad experience with a previous auto loan and you suspect you will have a poor credit score, then you need to try to find a lender that will only use your standard credit score instead of the auto enhanced score that can be different.
Qualifying for a car loan with really bad credit is most commonly done with a co-borrower or cosigner.
At Valley Auto Loans, we use lenders who compete for your business, and you will not find that at car dealerships. Not only do you get your auto loan application reviewed by many dealers but your credit report is only checked by the lender who is accepted for your loan. They will contact you with a loan offer for you to review. There is no obligation to agree on to the loan terms if you do not like them.
When it comes to buying a car with bad credit, the right investment is more important than having a better car. That is why we help our customers find the best loan for their situation. You should also do a little research if you are buying a new car or a used car to find the best deals. From getting approved for auto loans with bad credit to refinancing to lower your car payments, Valley Auto Loans is ready to help you today.