When you go to finance or lease a new or used car, one step in the process requires that the car company check your credit report. This is because your creditworthiness determines whether you qualify for the loan or lease and what interest rate you will pay. Laws govern when the car company can check your credit.
Fair Credit Reporting Act
Your privacy with regard to your credit report is protected by the Fair Credit Reporting Act. The specific part that pertains to running your credit without specific written or verbal permission is section 604(a)(3)(F). It says that company with "legitimate business need for the information in connection with a business transaction that is initiated by the consumer" has the legal right to run your credit.
Implications
When a car company has reason to believe that you are initiating the purchase or lease of a vehicle, it can run your credit. This is because it has a legitimate need for this information to tell you more about what your monthly payments will be. For example, if you sit down with a dealer and ask the dealer to finance your car, this is considered to be giving your verbal permission for the dealer to run your credit.
Prevention
When you do not want a car company to run your credit, explicitly state that you do not give your permission to check your credit. Say that you are just looking and are not yet interested in discussing financing for the vehicle. This makes it clear that you are not yet initiating a business transaction, and therefore, does not allow the car company to legally run your credit. If the company runs your credit despite your statement, you have a clear legal case against this company.
Significance
When a car company runs your credit, this puts a hard inquiry on your credit report. Having inquiries on your credit report makes you more of a credit risk because it shows that you have been applying for credit recently and must need money. Each inquiry should not hurt your score by more than five points. However, this can be significant if those five points bump you to a tier with a higher interest rate when you get your car loan.
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