How Do Car Dealers Check Your Credit?

Most people who buy new or used cars that cost more than a few thousand dollars plan to finance their vehicle by making a down payment and taking out a loan with monthly payments for the remainder of the purchase price. The amount of the down payment and the interest rate and duration of the loan are the key factors in determining the size of the monthly payment.

Filling Out a Loan Application

The first step in getting a loan from a car dealer is filling out a loan application. The application will at a minimum require your full name and address, Social Security number, banking information and annual income.

Checking Your Credit

One of the boxes you check on the loan application authorizes the dealership to check your credit. The finance department at the car dealer will use the information to check your credit score at a credit bureau such as Experian, Equifax or TransUnion. Most car buying experts stress the importance of knowing your credit score before shopping for a car so you can more effectively negotiate a loan.

FICO Score

Most dealerships do not order an entire credit report (which costs more), and just receive your FICO score (sometimes just called credit score). Your FICO score is a number between 300 and 850 that reflects your credit history. You generally will get the best available interest rate with a score of 750 or above. Anything below 650 usually means you will only qualify for a high-interest-rate subprime loan.

Good Credit, Bad Credit and Car Loans

Keep in mind that your credit score is just one factor in the loan decision-making process. While a very high credit score will almost guarantee you a low interest rate, lenders do consider other factors. Your income, years on the job, length of current residence, home ownership, total debt load, debt mix and other factors go into the loan decision, so do not despair if your credit score is not great.