All About Credit Reports & Scores
One of the most important things you can do before applying for an auto finance loan is get your credit report and review your credit scores. Your personal credit score is one of the most important factors in determining what interest rate you will pay. You should know what information the lenders have on you.
Don't let the guy you're applying for your loan with know more about your credit history than you do!
By reviewing your credit reports and scores beforehand will keep you from becoming a victim of many of the common car dealer scams that run rampant in today's dealerships.
In the past you would have to wait two to four weeks to get a copy of your credit report mailed to you. This gave car dealers the upper hand and made reviewing your credit report a hassle especially if you wanted to buy a car now.
Modern day technology has turned the tables on the car dealers, the Internet allows you to obtain and review your credit reports and scores online instantly.
Auto finance and car loan tips you will find in this section:
- What is a consumer credit report?
- What is a FICO® Score and why it's important.
- How your FICO® Score is calculated?
- Why you should know what's on your credit report.
- How not knowing your credit score will cost you.
- Will requesting my credit report hurt or lower my credit score?
- How to get your credit reports and scores online.
What is a Consumer Credit Report?
A Consumer Credit Report is a file based on your personal credit history and is kept and managed by a credit bureau. This report acts basically like your own personal financial report card for banks and lenders to determine your past history for paying back loans.
The three well known credit bureaus are TransUnion, Equifax and Experian. Your credit file will contain personal information like your name, address, social security number, birth date, public records, credit and loan payment history.
Credit grantors such as banks and lenders will report negative and positive payment information to these credit bureaus. Utilities like electric and phone companies, medical and student loans may also report your payment history to the credit bureaus.
Anytime you apply for credit, including a credit card or car loan, credit grantors may inquire and review your past credit history by using your credit reports to get this information. You do not want to be at a disadvantage by not knowing what's been reported to your credit bureaus.
Companies that pull your credit report do not have to give you a copy of your personal credit file, even if you request it. They must pay for the privilege to obtain this information about you and believe it or not your information becomes their property.
What is a FICO® Score?
The FICO® (Fair Isaac Corp.) score is like a grade in school, most car dealers call it a "beacon score." It ranges from around 300 to 850. Most people fall in between the 500 to 800 range. Financial institutions base their risk assessment of you based on your credit history. The higher your number is, the lower risk you are in paying back a loan.
The higher your score will also help you qualify for the lowest interest rates and be able to take part in special finance incentives and programs. The lower your credit score, the higher risk you are to the lender. You'll have to pay higher interest rates and may be subject to larger down payments, additional fees or not be able to get an auto loan at all. For tips on how to acquire a loan even with bad credit, read our section on how to apply for a bad credit auto loan online.
Car dealers obtain credit bureaus through 3 major companies TransUnion, Equifax and Experian. Some dealers will just pull your credit report from one company and some dealers may pull a combination of all three.
When car dealers "pull your credit," the system they use sometimes has an auto enhanced scoring system. The system looks at your automotive and installment history on your credit bureau and gives you a little boost in your credit score. You'll know if the dealer is using an enhanced system if your credit score is higher on the report they pull on you than the credit score on the credit report you obtained personally.
How Your FICO Score 9 Model is Calculated
FICO 9 is the latest version of the credit scoring model which was first introduced in 1989. Using the FICO Score 9 model, your score is a 3 digit number mathematically calculated from five different areas of your credit bureau. These areas include:
- 35% = Your payment history.
- 30% = How much money you still owe to creditors.
- 15% = Time on bureau or length of your credit history.
- 10% = New credit or new open trade lines.
- 10% = Other factors such as types of credit used.
Why You Should Review Your Credit History
You will want to know if any inaccuracies have been reported to your credit reports before you apply for a car loan. It's very important you do not let the person you're applying for credit or a loan with know more about your credit history than you do. Not knowing what's been reported to your credit history will put you at a serious disadvantage and may cost you hundreds if not thousands of dollars of unnecessary interest charges.
By finding out what's been reported will keep you from becoming victim to any car dealer scams such as the credit score doesn't qualify scam.
Other scams you may hear from a dealer:
- With your past credit history, we are going to have to charge you a higher interest rate.
- I'm sorry Mr./Mrs. Customer, by law we are not allowed to show you your credit report.
- Your credit score will not qualify for a 48-month term but we can approve you for a 60 or 72 month term. The good news is your payment will be lower.
- Your score does not qualify for our special 1.9% program. We can sell you the car but we'll have to charge you a higher rate.
- We are unable to get you into that car with your credit history; you'll have to buy this cheaper car.
- The only way we can get you approved is if you buy an extended warranty also. The lender wants to make sure you can pay for the repairs if the car breaks down.
Not Knowing Your Credit Score Will Cost You
Dealerships and lending institutions use a tier system. Normally this system is based from credit score and will look something like this.
Typical Credit Tiers for Car Dealers
- Tier 1 or A+ = 740 – 850
- Tier 2 or A = 700 – 739
- Tier 3 or B = 660 – 699
- Tier 4 or C = 581 – 659
- Tier 5 or D = 520 – 580
- Tier 6 or F = Below 520
If you have a 745 credit score you would fall in the tier 1 or A+ credit category and qualify for the best rates. However if you're unaware of what your credit score the dealer may tell you your score was only 725, which is still very good but drops you down into a lower tier and they can charge you a higher interest rate.
The car dealership or finance institution will use your credit score to determine what kind of interest rate they will charge you for the loan. They may say you qualify for 7% when you really qualify for 5%.
Now 7% sounds really good but you're still leaving money on the table and paying 2% more than you need be. This is just one of the many ways car dealerships make excessive money off you when you finance a vehicle with them. What will a 2% bump in interest rate cost you over the life of your car loan? Let me show you.
|Average new car price in 2014|
|60 Month Payment at 7% APR|
|60 Month Payment at 5% APR|
|Difference in payments|
|Payment difference x 60 months|
A slick talking finance manager closing you at a 2% higher interest rate than what you really qualify for will make his day and cost you over $1,700. This happens all day, every day, to unsuspecting customers.
In the above example I didn't include tax, title, license, or any misc. fees. If you were to roll TT&L into your loan, you'll pay even more. Paying interest on tax, title and license is not very good money management. Save yourself some money never roll your TT&L into your car loan.
Read more about how car dealers make money in the finance department by reading our section on how to finance a car.
Will Requesting My Credit Report Lower My Score?
Inquiring on your own personal credit reports will not hurt or lower your credit score. When you request your own credit report, it's considered a "soft inquiry" or "soft pull." A soft pull will not lower your credit score and will not show up on your credit reports when a bank or lender views it.
A "hard inquiry" or "hard pull" is when a company requests your credit report as when applying for credit or a loan. By having too many hard pulls on your credit will make a lender believe you're trying to over-extend yourself and potentially lower your credit score.
How to Get Your Credit Reports and Scores Online
The three major credit bureaus are Experian, TransUnion, and Equifax. Each company will allow you to get your credit report and score online through their secure web sites.
By law, in the United States. You have the right to receive a free copy of your credit report annually. However, your FICO Score will not be included with these free reports.
There are some Internet sites out there that will provide you with a free credit report. After you receive your free report, you will be asked if you're interested in purchasing your credit score. If yes, you will be directed to one of the three major credit bureaus.
I've included a direct link so you may get all three of your credit reports, credit scores, and credit history below. FreeScore360 also offers credit monitoring products. They have great products for you to pick from so pick the one that best fits your individual needs. As rampant as identity theft is today in our electronic world, I would personally select a product that monitors your credit report and provides you with email alerts with any changes to protect your identity.
FreeScore360 takes your personal privacy very serious; before clicking the submit button, double check all the information you provide for accuracy.
Get Your Credit Reports and Scores Online
Our Rating = Excellent
FreeScore360 will allow you to receive all of your personal credit reports and scores from all three bureaus (Experian, Equifax, and Transunion) by signing up for their free trial. When it comes to credit score monitoring, identity protection, and credit report information, FreeScore360 is by far the best value for the money They offer several products for you to choose from and their customer service is second to none.
Benefits of FreeScore360:
- 1-day free trial credit monitoring.
- Instantly access your credit scores from all three bureaus.
- Unlimited viewing access.
- Secure online delivery for your convenience.
- ScoreSencse dispute center.
- Interactive tools and learning center.
- Daily credit monitoring & alerts.
- Personalized customer service.
The FreeScore360 monitoring product offers a 7-day trial that provides you with the ability to get all three of your credit scores, review what's been reported to your credit report, receive credit alerts, and gain access to colorful charts and graphs on changes in your debt, income, available credit, and more.
After you've received your credit report and score, shop interest rates by getting free low interest auto loan quotes online before contacting a car dealership. Online lenders will provide you with the best interest rates and you can use their free, no-obligation car loan quotes to negotiate with a car dealerships finance department.
Having the knowledge of your personal credit history can help you save money because you'll know if the terms presented to you fit your credit score and history.
If you'd like to know what's included in a credit report, read our section on how to read your credit report to learn how to read and understand your credit file and know how to find your credit score.
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My Recommended Sites for Car Shoppers
MyAutoloan and InstantCarLoan are the quickest way to get a pre-qualified auto loan. These online sites will provide you with free, no-obligation quotes and the interest rates quoted are normally very good. You can also use these quotes to negotiate an even better interest rate with a dealership.
Share Your Tips - If you have any tips or how to get your credit reports and scores online that will help other car buyers save money. Please tell us about it in the comments below, so we can share it with everyone.