Scoping Out Your Credit Score: Why it’s Different at a Dealership
Unless you decide to shop at a Cincinnati buy here, pay here dealership, you should be aware of the credit score used by traditional car dealerships because it will likely be different from the credit score you have in mind. Although there shouldn’t be a major difference between the two, you might feel alarmed if you don’t understand why the score you found differs from the one presented by the dealership. No, this isn’t illegal, nor is it some type of scam; it’s simply a difference in financing and focus. What you’ve found is something called a generic score, which takes into account the general factors affecting your credit score. The score the dealership has is industry-specific, and tailored exclusively towards projections of how well you will pay off your automobile loan.
But, before we jump into talking about the differences between the generic score and the industry-specific score, it’s important to have a good understanding of what impacts your credit score in general.
What Affects Your Credit Score?
Your credit score is affected in many different ways, and multiple factors determine if your score increases or decreases. When looking at what can harm or help your credit score, it’s also important to understand that (depending on the significance of it) each element will have a different level of impact.
Multiple things can help promote a healthy score, the first is making payments on-time. If you make payments on time, this shows financial responsibility. That financial responsibility translates to a better credit score overall, eventually. In order to raise your credit score, you need to keep making payments on time. Doing it once won’t change much, if anything at all. According to myFICO.com, this is the most impactful percentage of your credit score. Therefore, it’s important to establish and maintain a good track record for making payments on time.
Another common way to help your credit score is by keeping the amount owed low. Don’t rack up thousands of dollars in credit, and then just send in the minimum payment month after month. Next to your payment history, this is the second element that will affect your credit score the most. Therefore, using your credit card for manageable purchases and then swiftly paying off most (if not all) of the amount owed before your next payment due date is a good way to help your credit.
Consistently missing or making late payments and always carrying a large amount of debt is a good way to tank your credit score. But, there are some other factors that will lower your credit score, which you should know about as well.
Any “black marks” on your credit history can alter your credit score depending on what they are. Tax liens, accounts in collections, and bankruptcies are among the more serious things that can affect your credit score. These will show up immediately and lower your score drastically.
Something else that can make either a negligible or noticeable difference on your credit score are hard credit inquiries. When applying for a new form of credit, whether it’s another credit card or an auto loan, a hard inquiry is put on your report. A single inquiry will only typically lower your score by a few points (or maybe not at all); but, if you make multiple hard inquiries over a certain period of time, you are bound to notice a significant drop in your score.
Building a good credit score takes responsibility and time. Lowering it, however, happens almost instantly, which is why it’s important to frequently check your score, and remain vigilant about your payments and your amount of debt.
The Score You See is Different From What the Dealer Sees
Now that you know some different factors that alter your credit score, it’s time to jump into why you see a different credit score than the dealership. It all boils down to this: when you check your credit score, you see an “all-purpose” equation. But, when the dealership checks your credit score, they use a different equation designed for lenders in the automotive industry.
What’s important to note however, is that your credit score will fluctuate over time. If you checked your score a couple of months ago and then went to the dealership, your score will likely have changed .
Your “All-Purpose” Score
This generic and “all-purpose” equation that you receive from websites is focused on one thing: predicting the likelihood of being “delinquent” on the amount owed within the next few months. It will predict and assess your chances of making, missing, or defaulting on a payment on all your account types. These account types are/could be: credit cards, mortgages, personal loans, student loans, etc.
This score is also predicted based on what type of payment pattern is recognized. If you are worried about losing your car and house the most then you will pay those loans first, and worry about your other ones next, if possible. This dance between paying secured and unsecured loans is recognized and also helps determine your generic credit score.
Industry Specific Credit Score
When it comes to an automobile loan, the lender determines whether you will be approved or denied for a loan, your loan term, and what interest rate you will be charged. Plus, they are taking a direct risk in allowing you to finance through them so they will be looking at things a little differently. They don’t weigh how you well you pay off revolving lines of credit, or any other forms of unsecured debt; those are somewhat irrelevant to them. Nor do they care about how you are doing or will do with paying your mortgage each month. After all, you’d rather lose your car than your house first, right?
What they do focus on is solely predicting your future financial responsibility for paying off an automobile loan. Your “all-purpose” score will still be taken into account, and might be very similar to the industry-specific credit score, but they are by no means the same.
Lesser Known Reasons
There are a couple of lesser-known reasons that you may see a different credit score when you go to the dealership. Your credit score will vary from agency to agency, and auto dealers use different agencies than you do to get their specialized score. Also, since scores vary by bureau — there are three major consumer-reporting companies in the industry — and your score might be slightly different between them. These three companies split the market share in thirds, which means if you check an all-purpose score from one company, the dealership has a 66% chance to pull a slightly different score from another one. Like I said before, the difference should only be a few points at the most, but rest assured, the dealership is not trying to scam you by presenting you with a different score.
But, at a buy here, pay here dealership you don’t need to worry about your credit score. If you are going to a buy here, pay here dealership, it’s because you couldn’t find financing elsewhere. Why? Because, your credit score is bad, and no one wanted to risk taking you on for financing, which is okay. It happens. You probably fell into a rough patch a little while back and your credit score plummeted, which is why buy here, pay here dealers exists. They will get you financing for a car, even with bad credit, and get you back on the road to repairing your credit score through monthly (or bi-weekly) loan payments they set up for you. They even report your progress to the credit bureaus, so all you need to do is make your payments on time and watch your credit score improve.