What Happens When a Car Dealership Runs Your Credit?
Understand the full process when a car dealership assesses your financial standing for vehicle financing. Learn what happens and why.
When considering purchasing a vehicle, particularly through financing, a car dealership will review your credit. This process is a standard part of determining your eligibility for a loan or lease, and it helps the dealership and potential lenders understand your financial standing.
Why Dealerships Review Your Credit
Car dealerships conduct credit checks to assess a potential buyer’s creditworthiness. This assessment helps them gauge your ability to repay a loan or lease, which is a fundamental step in the financing process.
Your credit score and report directly influence the interest rates and terms offered for a loan. A higher credit score often translates into quicker approval and more favorable interest rates, potentially saving you a significant amount over the life of the loan. Dealerships use this information to present financing options tailored to your financial profile. In some instances, your credit standing might also influence your eligibility for specific vehicles or special financing programs available through manufacturers or lenders.
Information Required for a Credit Review
To complete a credit application, a car dealership will ask for personal and financial information. You will need to provide your full legal name, current and any previous addresses, and your date of birth. A Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) is also required.
Dealerships will additionally request details about your employment history, including the employer’s name, address, phone number, your job title, and length of employment, along with your gross monthly income. Contact information, such as your phone number and email, is also collected. Information about other existing financial obligations, like current loans or mortgages, helps provide a complete picture of your financial situation.
How Dealerships Access Your Credit
Car dealerships access your credit history using specialized software platforms that connect them to the major credit bureaus. These systems, such as RouteOne or Dealertrack, allow dealerships to submit your information and retrieve a credit report and score.
There are two main types of credit inquiries: soft inquiries and hard inquiries. A soft inquiry occurs when someone reviews your credit file for purposes like pre-qualification or pre-screened offers, and it does not affect your credit score. In contrast, a hard inquiry, also known as a “hard pull,” happens when you formally apply for credit, such as an auto loan, and it requires your explicit consent. Hard inquiries can temporarily lower your credit score by a few points and remain on your credit report for up to two years. Dealerships typically perform a hard inquiry after you submit a complete credit application. The three major credit bureaus that dealerships access are Experian, Equifax, and TransUnion.
Impact on Your Credit Score
Hard inquiries from car dealerships can result in a small, temporary dip in your credit score, typically ranging from 5 to 10 points. These inquiries remain on your credit report for approximately two years, though their impact on your score lessens over time. This short-term reduction is generally minor, especially if your overall credit profile is strong.
A key consideration for car buyers is the “rate shopping” rule. Multiple hard inquiries for the same purpose, such as an auto loan, within a specific timeframe are often treated as a single inquiry by credit scoring models. This timeframe can vary, but it commonly ranges from 14 to 45 days, depending on the scoring model used. This grouping allows consumers to shop for the best auto loan rates without incurring multiple negative impacts on their credit score.
Protecting Your Credit and Rights
Before visiting a dealership, it is advisable to obtain and review your own credit reports. This allows you to identify and dispute any inaccuracies or errors that could negatively affect your score. The Fair Credit Reporting Act (FCRA) provides consumers with the right to dispute inaccurate or incomplete information on their credit reports, and credit reporting agencies are required to investigate these disputes, usually within 30 days.
It is important to understand that dealerships require your explicit consent to perform a hard credit inquiry. If a hard inquiry appears on your report without your permission, you have the right to dispute it. To minimize multiple inquiries, consider getting pre-approved for a car loan from an external bank or credit union before visiting a dealership. Pre-approval provides you with a clear understanding of your potential loan amount, interest rate, and terms, which can enhance your negotiating position and streamline the car-buying process.