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17 Jun

Your credit report & auto dealership financing

General

Posted by: Kevin Carlson

Hello All;

Most everyone needs a car loan at some point.  I wanted to pass along some information on car loans and the credit checks or hits that take place in the process of a car loan.

 A credit check is required anytime someone is applying for any sort of financing such as mortgages, loans and credit cards.  There are also many other corporate entities that will get a look at your credit report that most people are not aware of.  Cell phone providers, rental property managers, collection agencies and even some health clubs often use credit checks.

Anytime your credit is checked there is always a little bit of a dip in your credit score.  This is temporary and your score will rebound within a few weeks.  The decrease in score is an anti-fraud measure built into both credit reporting agencies, Equifax and Trans Union.  This prevents someone from financing many high ticket items like vehicles over a day or two with the intent of never paying and selling them for cash.

 I find that most vehicle loans these days are done through dealerships.  This can be good because interest rates can be lower than going to your own bank.  However there is one big difference that everyone should be aware of.  Just one application for vehicle financing at a dealership could generate anywhere from 2 to 6 or even 8 hits to your credit report over a few days.  This most often happens with clients that have less than optimal credit history.  Multiple credit hits such as this will make it take much longer for your credit score to rebound.  Repeated activity like this over a few years will eventually illustrate a credit report of a client that the banks label as a “credit seeker”.  Banks and mortgage lenders see credit seekers as a risk and are often declined for mortgages.

My advice is that you only apply for vehicle financing once you have chosen the vehicle you are going to buy.  Applying for financing at just 2 dealerships can turn into over a dozen hits on your credit report very quickly.