If you find out that you need to go through bad credit car dealerships for financing, chances are your interest rate is going to be high. How high? Well, that’s determined by your credit score. A decent portion of your finances are going towards this high interest rate when paying off your credit loan, so it’s important to know the ins and outs of your credit report. Shopping for a bad credit car loan might be more arduous then you initially thought; and it all starts here.
There is a lot more to your credit report than you think, especially since it doesn’t just directly apply to your car loan. Therefore, it’s important to check it yourself and get a full understanding of why your score is the way it is. Also, it’s important to understand what type of information it contains before you even begin shopping around for a loan.
Check it Yourself
It’s very easy to check your credit score/get your credit report yourself. Everyone is entitled to one free credit report each year from the credit agencies, so make sure to take advantage of this. Checking your credit report yourself beforehand does multiple things for you, such as giving you an idea of where you will stand when it comes to your interest rate. Also, it allows you too see any “black marks” that might pop up on your credit report.
Black marks are anything that indicate you are a potential risk; ex. foreclosure or bankruptcy. Checking your credit report will not only ensure that you are aware of this knowledge before the lender is, but also give you a chance to improve your credit score. While there is nothing you can do to completely eliminate these black marks (chances are they’ll be there for 7-10 years) you can still help diminish their impact. As time goes on, these black marks become less and less significant. Couple this with improved financial habits, and they will all but disappear to a dealer when looking at what your improved score looks like.
Time is your friend in this situation, because not only will it reduce the impact of these black marks; but it also gives you a chance for a better loan. If you don’t need a car immediately, it’s beneficial for you to wait it out, and start building good financial habits. Not only will this help you in paying back your car loan on time, but it will give you a chance to get your credit score higher by making payments on time. In turn, this improved score will land you a better loan, meaning your interest rate won’t be as high.
Even if you need a car now and can’t take the time to get your credit score up, arming yourself with this knowledge will make you feel better when going into the transaction. Also, the dealer will be able to see that you have taken the time to research; showing them you are serious about getting a car.
What Kind of Information Does it Contain?
Your credit report shows a few things, two of which are important in general, and even more significant when applying for a car loan.
First, it shows your financial history. This is a record of your ability to make purchases on your credit card/borrow money and repay it on time. This record, along with many different factors, determine your credit score in the end.
Which is the second key piece of information your credit report contains; the score. Your score is determined by the credit bureau and certain factors. They combine these numerous factors (including black marks, financial habits, and length of credit history) to determine what your score is. Typically, these scores will fall between 350-800. The higher the score, the better your rating. For a credit score considered to be “bad” or subprime, it’s ultimately up to the lender in the end. Some may finance people regularly with a score of 680 or higher, some might use that as a subprime score. An excellent credit score is considered 750 or higher, and a poor one is considered to be between 600-649.
This score is what the lender uses to determine if they will give you a loan or not. If your credit score is really low, most dealerships probably won’t even give you a loan.
Why Does the Dealership Offer to Check it for Me?
Since dealerships use your score to determine your loan/interest rate, they will offer you the chance to get a credit report through them. This can be a beneficial option, if done right. Dealers have access and connections to the best possible financing options for a consumer, and they want to share that with the consumer. Typically, they can get rates lower than anywhere else, and the amount they can get financed is much more than most local banks or credit unions.
Another reason the dealerships asks for a credit report is for their own safety. They need to make sure that you are a customer who is actually going to pay off their loan. If not, they will take a big financial hit. It’s because of this financial risk dealers also offer you the chance to get a credit report through them. It helps weed out the ones who are a financial risk, and let the consumers who are serious about getting a car the opportunity a better deal.
Even if it seems like a good deal, don’t get a score prematurely. If you’re unsure of buying a car from a dealer, then don’t get a score. Only get a credit score if you are sure you will purchase a car from them. There are some risks when it comes to getting your credit checked from a dealer; we will get into those a little later.
I’m Paying in Cash. Why do they Need it?
Even if you are paying cash, the federal consumer protection and national security laws require that dealers verify the identity of buyers. Regulations set in place such as the Patriot Act have requirements that are intended to counteract terrorists that might use car buying as an opportunity to launder money. The Red Flag Rules also require dealerships to grab a credit report as a way to prevent identity theft.
On top of the ability for car dealerships to offer consumers the best financing possible, they also need a credit report for legal purposes; even if you are paying in cash.
Are There Any Risks if I Let A Dealership Get My Credit Report?
There are a few potential risks when it comes to letting a dealership check your credit report for you; the primary one being a false credit score. This is especially risky for consumers with bad credit; since some bad credit car dealerships have a history of taking advantage of the consumers bad credit, and lack of knowledge on the subject. Which is why it’s even more important to get your credit report before hand, so you know exactly where you sit. If they give you a false credit score, they can jack your interest rate up and say you are only eligible for a car that looks like it’s going to break down next week.
This could also happen to a consumer with good credit; new and used dealerships could all do this if you let them check your credit report. A simple way to prevent a risk like this is to check your credit report yourself beforehand, like what was discussed earlier.
Knowledge is Power
The saying knowledge is power could never be more true when it comes to your credit report. Before shopping around for a car loan, make sure to take this information into account. Understanding your credit report, how it works, the risks associated with letting a dealer check it, and why they need it are all key for you to find the right dealer and car.
There is a lot to this buying process, but if you understand your credit report and score, it will certainly make it easier when it comes time to shop around.
