How Do Car Dealers Check Your Credit?

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Car dealers gather financial information by asking potential customers to complete an auto loan application. They use the information you provide, including your Social Security number, to obtain your credit report. With your consent, the dealer's finance department provides your information from the application to the credit bureaus. When a dealer pulls your credit report, it's known as a "hard pull." Although a hard credit inquiry can lower your score, the impact is usually minimal.

Granting Permission

Car dealers only need permissible purpose to check your credit. An example of permissible purpose is reviewing your credit to confirm your identity before accepting a personal check. However, the dealer needs your permission before running your credit report. You'll need to provide your Social Security number before a dealership can run a credit check. The salesman will typically have you sign a credit application, which asks you for your personal identification information and your signature consenting to the credit check.

Why the Credit Check

Car dealers check your credit to learn more about your financial situation and to protect themselves from fraudulent shoppers. Your credit report helps verify you are who you say you are. The information in your credit report is also essential to obtaining financing. When a dealer pulls your credit report and history, he will get a better idea of whether you are a good risk for a loan, and what terms to offer you. If you have poor credit, you can expect a higher interest rate on a loan for the same vehicle than someone with good credit. If you tell the salesman you want to stick to a certain payment range, running your credit can help determine which cars will fit your budget. For people with a very low credit score, financing may not even be an option.

A Spouse's Credit Report

Although a married couple might have joint accounts, their credit scores remain separate. If you have joint accounts, you're equally responsible for debts. Unless your spouse is applying for the auto loan as a joint borrower or co-borrower on the loan, the dealer won't need to check her credit. When you apply together for an auto loan, both incomes are taken into consideration. If one spouse has better credit than the other, a joint application could result in a higher interest rate than if the spouse with the higher score applied alone.

Financing Application Process

Some dealers provide financing themselves, while others contact outside lenders. To get the best interest rate, prepare to negotiate. You may want to check your credit report before having a dealer pull your credit report. Knowing what's on your report and what lenders are looking for may give you a little bargaining leverage. Lenders and finance companies are looking for red flags that may indicate you're a financial risk. If you have a recent bankruptcy or foreclosure on your credit report, the banks may be reluctant to loan you money. Recent charge-offs and delinquent accounts also have a negative impact on your credit report. In some cases, a dealer will approve your application even if you have poor credit, but charge a high interest rat to help offset the risk.

Tip

  • You can obtain a free copy of your credit report annually from each of the major credit bureaus by visiting annualcreditreport.com.

Credit Scores

Lenders also look at your credit score, which is a number assigned to you based on the information in your credit report. Factors affecting your credit score include your payment history, the length of time your accounts have been in place, your credit utilization ratio and your credit mix. Since there are three main credit bureaus -- Experian, Equifax and TransUnion -- the information reported to each bureau can vary and result in three different scores. Lenders may take the average of the scores or only pull from one bureau.

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