Seven Things To Know About Car Loan Credit Reports on

Seven Things To Know About Car Loan Credit Reports

Know These Credit Report Basics Before You Go Car Shopping


You walk onto a car lot and even before you test-drive a vehicle, the salesman asks you to fill out a credit application. Why is he asking you to do this? And what should you do?

Dealers say that they are struggling to meet increasingly complex government demands for information about their customers. But at the same time, experts warn consumers about the growing threat of identity theft and shady sales practices. This situation can sometimes put dealers and customers at odds and lead to misunderstandings.

But with a greater knowledge of credit rules, car buyers and dealers can find common ground: namely, a good loan for the car buyer and a sale for the dealership.

Here, then, are seven things to know about your credit report. A better understanding can speed up car shopping and clarify what can be an intimidating and confusing process.

1. 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.

Car Loan Credit Reports

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.

"Sometimes, just asking for a credit report will end the whole process." Other times, it shows that the customer really is capable of affording a car.

Of course, asking for permission to run a credit report before a test-drive requires good people-reading skills and diplomacy on the part of the salesperson. The last thing he wants to do is alienate a scruffy but qualified buyer.

Another reason dealerships like to get the credit application filled out early on is because it is a rapport builder for the salesman, Cutright says. Some shoppers fill out the application themselves, while other times a salesman can fill it out with information the consumer provides verbally. If the customer agrees to provide information for the credit report, this is a chance for the salesman to earn the customer's trust as they discuss their employment, salary and provide other personal information, he says.

Consumer advocates, meanwhile, caution that shoppers should not agree to have their credit run until they are ready to actually begin the vehicle financing process. If consumers have run their own credit report before car shopping (to ensure that there are no errors on the report, for example), they have nothing to gain by allowing a premature credit check.

Some dealers use the credit report for another, less consumer-friendly purpose, says Chris Kukla, senior vice president of the Center for Responsible Lending.

"The result of the credit report has an impact on what the buyer pays for the car, and whether they get a hard sell for additional products in the finance and insurance office," he says.

2. What information does my credit report contain and what does the dealership do with that information?

A person's credit report shows two things that are essential to getting a good car loan:

a. The report shows your financial history. It is a record of your ability to borrow money and repay it on time. It weighs about 30 different credit-related factors such as your payment history, amount of outstanding debt and the length of your credit history.

b. The credit bureau combines all the factors in your credit history into one numerical score commonly referred to as the FICO score. This ranges from 350 to 800, with the higher score being the best. The dealership will use that score as it contacts different lenders to determine if they will give you a loan and at what interest rate.

3. I'm paying cash. So why is the dealer asking to pull my credit report?

Federal consumer protection and national security laws require that dealers verify the identity of buyers, according to Bradley Miller, associate director of legal and regulatory affairs for the National Automobile Dealers Association (NADA). The Patriot Act has requirements meant to counteract terrorists who might use car buying to launder money. Other federal regulations, known as Red Flag Rules require dealerships to protect against identity theft. Pulling a credit report is a quick way to verify that the person presenting himself as a buyer isn't actually trying to steal someone else's identity.

In a legal sense, a dealer only needs a "permissible purpose" to access a person's credit, Miller says, and there are a number of such instances. Usually, it occurs when a consumer wants to take advantage of low-interest financing via the dealership. But it would also be permissible, for example, for a dealer to ask for a credit report before accepting a personal check from a customer. It may be the dealership's only hedge against taking a bad check when sales take place on evenings or weekends. That's when banks are closed, and it's difficult to verify that the funds are available.

4. Can the dealership run my credit without my knowledge?

It's not supposed to. The dealership is required to get your permission to run a credit report. Usually, the salesman asks you to sign a credit application. If you are shopping over the Internet, you can sign the application and send it back electronically, says Cutright, who managed Internet sales departments during his car-selling career.

A dealer does need a Social Security number to run a credit report. And in a few instances, dealers have asked for the customer's Social Security number, telling them that the Patriot Act required them to do so. Then the dealer used the number to pull the customer's credit report without permission.

In fact, the anti-terrorism law only requires a Social Security number for a cash car purchase of more than $10,000. It does not require a dealer to review a credit report, say attorneys from both NADA and the National Independent Automobile Dealers Association.

Car Loan Credit Reports

Sometimes customers fear that when the salesman asks for a driver license (as is often the case before a test-drive), he will use the driver license number to run a credit report. States can no longer use a Social Security number as a driver license number, so this is less likely to occur. If you have an older license that still lists your Social Security number as your license number, contact your registry of motor vehicles to get it changed.

5. If the dealership runs my credit, will my FICO score drop?

The first "inquiry" (a request for a credit report) has a minor impact on the credit score, but subsequent inquiries do not, says Melinda Zabritski, senior director of automotive credit for Experian.

"It's well known that consumers shop around when they are car buying," she says. So Experian, for example, groups multiple inquires occurring within a two-week period and they have no further effect on a consumer's credit score.

Car Loan Credit Reports

According to the Experian Web site: "10% of your credit score is based on inquiries or 'credit checks.' Every time you apply for credit, a 'hard inquiry' is placed on your credit report. Having too many hard inquiries could indicate to lenders that you're trying to overspend."

6. 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.

7. Is there anything I need to do concerning my credit before I go car shopping?

Check your credit report yourself. This is the most recommended piece of advice by both dealership representatives and consumer advocates. Eleazer says to pay attention to the accuracy of the report and challenge any mistakes with the credit reporting agency. Resolving these problems ahead of time could raise your credit score and give you access to a wider range of finance options.

"I tell consumers to take advantage of one free credit report each year," says Shawn Petersen, regulatory, legislative and compliance counsel for NIADA. "Going into a car transaction armed with that information, and knowing what your credit report says, will show the dealer that you are knowledgeable."

That knowledge could help you avoid mistakes and save a lot of money in the long run.

To find a dealership that knows how to treat shoppers right, please visit's Dealer Ratings and Reviews.



  • faaastcash faaastcash Posts:

    Today more and more people are applying for car loan credit through online companies. This is because these companies offer much more competitive rates as compared to traditional banks and lending institutions.

  • Clint Clint Posts:

    Mr. Eleazer's statement dealers have access to the best financing available is not accurate. Dealers have access to a variety of financing options. However, those options do not always translate to the best available financing. Mr. Eleazer knows the word 'best" is not a word F&I managers should ever use. Furthermore, his suggestion dealers are eager to share that financing with customers is very misleading. One thing Mr. Eleazer fails to mention is, while dealers are very happy to have customers finance through the dealership, he fails to mention one of the primary reasons for this is it allows dealers a chance to make a considerable profit. Dealers often add to the interest rate at which a customer actually qualifies. For example, a customer may actually have been offered a 2 percent interest rate by the dealer's bank. However, the dealer may offer the customer a 3 percent interest rate. Of course the dealer and folks like Mr. Eleazer pocket a nice portion of the difference. This is called dealer reserve. It is most successful, from a dealer's perspective, with the more unsophisticated car buyer and with the subprime, people with poor credit, market. Finally, new car dealers do not finance vehicles, contrary to what Mr. Eleazer states. The financing institution finances the vehicle and establishes the base interest the customer will have to pay as well as the amount of money which will be included in the loan. The F&I folks, like Mr. Eleazer, use that information to concoct a deal which will result in the most profit of the dealer and the F&I manager. Prior to visiting any dealer, a potential buyer should research the financing options available to them as well as the going prices for the vehicle and KBB or other value for any trade vehicle. With this knowledge, a buyer can assure a good deal. With proper research, it is almost always a good idea to allow folks like Mr. Eleazer an opportunity to arrange financing. They often really are able to arrange a lower interest rate than the buyer is able to obtain. However, the key is to make sure Mr. Eleazer and other F&I managers do not add to interest rate. And always, watch for those pesky document fees.

  • ken117 ken117 Posts:

    The last person anyone should consider taking advise regarding an auto loan is an auto dealer's finance and insurance (F&I) staff. The F&I person is actually just another sales person usually the best in the dealership. The F&I person has a primary goal of not only completing the deal but to increase the overall profit for the dealer. The F&I person has considerable training as to how to accomplish this goal. As such any advice from such a person is dubious at best. The good thing is a knowledgeable buyer is more than a match for the best F&I person in the world. Personally, I always find it amusing to anticipate the next gambit the F&I manager will play. Making a game of dealing with the F&I manager can be a hoot.

  • dansny dansny Posts:

    Pure balony! Banks like BofA and CapitalOne offer similiar or better rates than stealerships. And, always ask for a test drive BEFORE signing/filling anything out! And, if the dealer denies your request. Then move on to someone who will, because you're the one who is paying. It could even be a waste of your time just talking about a car that has to be junked or is not for you. Buying a car requires lots and lots of patience! It took me almost 5-months to find my dream car and not even have the slightest doubt in my mind of my decision.

  • veeone veeone Posts:

    I just bought a $40K car, dealership ran at 3.99%, credit union beat it at 1.98% - and sold me a warranty for $2900 and GAP protection for $895. Credit union has exact same warranty for $1900 and GAP for $395 - let's see who's screwing who on financing - dealerships! And then to find out that a week later when we were looking at maybe another car purchase for my husband, that they took the information from MY purchase app and ran us to 4 different banks without our permission and they said they took it from the previous app! Isn't that just slightly illegal!!!!!! There's no app on file for that car that we were looking at, nothing signed - nada and they just blatantly decided to 'shotgun' us to multiple banks when we told them the night before we were not ready to do anything with credit or purchase yet? A-holes.

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