Do Car Dealerships Use FICO Scores?
Understand how car dealerships utilize FICO scores to determine your auto loan eligibility and terms. Learn what impacts your financing.
Car dealerships utilize FICO scores to evaluate a borrower’s creditworthiness. These scores are a central component in determining the terms of a car loan, including the interest rate and approval likelihood.
Understanding FICO Scores in Auto Lending
FICO scores offer a snapshot of an applicant’s credit risk. While a general FICO score ranges from 300 to 850, auto lenders often use industry-specific FICO Auto Scores that can range from 250 to 900. These specialized scores are tailored to predict on-time repayment for car loans, sometimes weighing auto loan payment history more heavily. This means a base FICO score may differ from an Auto Score. Lenders may use various versions of these scores.
Key Factors in Your Auto Loan Credit Score
Several elements contribute to a FICO score. Payment history is the most significant factor, accounting for approximately 35% of a FICO score, reflecting consistent, on-time payments. Amounts owed, or credit utilization, makes up about 30% of the score, indicating the proportion of available credit being used. Keeping balances low relative to credit limits is beneficial.
Credit history length accounts for about 15% of the score. A longer history of responsible credit management results in a higher score. The mix of credit types, such as revolving credit and installment loans, contributes around 10% to the score. Managing diverse credit responsibly is seen favorably. New credit applications, which result in hard inquiries on a credit report, make up the remaining 10% and can cause a temporary slight dip in the score.
The Dealership’s Credit Evaluation Process
When a customer applies for financing, the dealership requests permission to perform a credit check, obtaining a credit report and score from major credit bureaus (Equifax, Experian, or TransUnion). This involves a “hard inquiry” on the applicant’s credit report. Dealerships partner with a network of financial institutions, including banks, credit unions, and other lenders.
The dealership submits the credit application, with the applicant’s FICO score and other financial details, to these lenders. Lenders consider additional information to assess repayment capacity, such as income, employment history, and debt-to-income ratio. The dealership uses this comprehensive evaluation to match the buyer with suitable financing options and present loan offers.
How Your Score Affects Car Loan Terms
Higher FICO scores mean more favorable car loan terms. Borrowers with strong credit scores (typically 670 or above) are considered lower risk and often qualify for the lowest interest rates. For example, a high score might secure an annual percentage rate (APR) of 3-5%, while lower scores could face rates of 10-15% or higher. This difference impacts the total cost of the vehicle over the loan term.
Lenders categorize credit scores into tiers (e.g., “super prime,” “prime,” “near prime,” “subprime”) to determine eligibility and pricing. A lower FICO score can result in higher interest rates, stricter loan terms, or require a larger down payment. A very low score might lead to loan denial, though financing may be available through specialized lenders at higher rates. Maintaining a strong credit profile helps secure more advantageous car loan terms.