Auto financing involves the evaluation of credit reports and scores of individuals who wish to purchase cars from dealerships. This enables them to evaluate the ability of the customer to repay an auto loan and the appropriate interest rates to charge. Of the three largest consumer credit reporting companies that offer this credit information, Equifax and TransUnion are some of them.
The short answer to the question is that yes, car dealerships do use both Equifax and TransUnion to run credit. Many will run a credit check on the customer, pulling records from both big credit bureaus to gain an understanding of the applicant’s creditworthiness and capacity to manage an auto loan. However, there are cases when some dealerships may decide to obtain credit information from one or the other.
Why Car Dealers Run Credit Checks
When you apply for financing on a new or used car, federal law allows the dealership to pull credit reports and scores from Equifax, TransUnion, and Experian. They do this to learn more about your past in paying debts and meeting your obligations on time. Customers with good credit ratings are deemed to pose lesser credit risks to the lender because they have demonstrated creditworthiness. For those with good credit scores, the lenders are likely to offer lower interest rates to the borrowers.
Credit risks may be denied financing, receive financing with higher interest rates, or only access a certain type of financing or company. Thus, a credit check enables the dealer to present loan offers and rates that are specific to the applicant’s credit history. It also helps them to be in line with lending rules and requirements when extending car loans via third-party financiers.
Why Equifax and TransUnion Credit Bureau May Be Used
A survey of industry players suggests that most dealerships run credit checks from both Equifax and Trans Union when a buyer seeks to finance a car. There are some key reasons behind this practice: There are some key reasons behind this practice:
• Full credit report – there are no two similar credit reports. Although most of the information coincides between Equifax and TransUnion, one report may contain some of the account, inquiry, or other credit information that the other one does not contain. Collecting both offers the most recent and comprehensive picture of the applicant’s credit borrowing and repayment profile.
• Explain variations in scores – The same individual can have a different credit score from the three credit reporting companies because the models are different. In general, the Equifax score is on average 50-60 points less than the TransUnion score of a particular person. This way, analyzing the scores from both Equifax and TransUnion will help dealers understand if the difference in the score indicates specific credit events or if it is the result of the difference in algorithms.
• Minimize report mistakes – Similar account swapping, wrong account details, fraudulent credit – any of these can reduce a good credit rating. If such errors are only present in one of the bureau scores, then the other score will indicate the actual creditworthiness of the customer.
• Satisfy lender standards – It is common for third-party lenders to have lending standards that dictate that credit checks from at least two bureaus must be conducted before auto loans through dealers can be approved. The Equifax and TransUnion reports help dealerships align themselves with these rules for proper loan assessment.
When Only One Credit Bureau May Be Used
While dual credit pulls are the norm, there are some situations where car dealerships may rely solely on either Equifax or TransUnion reports: While dual credit pulls are the norm, there are some situations where car dealerships may rely solely on either Equifax or TransUnion reports:
• Company policy/preferred bureau – Some dealers use only one bureau such as Equifax or TransUnion in dealer credit check procedures to avoid confusion and maintain uniformity of the processes in all the dealerships. Single-bureau policies are more common in dealers with large lending operations that are centrally located.
• Bureau used by lenders – In situations where a dealer relies on financing from a specific big bank, then they can only access reports from the bureau that the bank uses to run credit checks based on the service provision contact.
• Minimizing the number of customer queries – running reports at either Equifax or TransUnion means that the buyer will not have to pull credit reports on the other credit bureau. However, having many credit inquiries in the course of a few months can be damaging to scores that use it. Reducing inquiries may be useful for customers who have healthy credit scores as they are.
• Local bureau supremacy – Depending on the region of the country of operation, either Equifax or TransUnion may have a richer credit data repository and consumer penetration thus being the local market favorite.
The Takeaway – Equifax and TransUnion Both Matter
Although certain policies may prescribe the use of only either Equifax or TransUnion, it is industry standard across auto sales to purchase new buyers’ credit files and scores from the two major bureaus. The most effective way of giving dealers the true perception of customer credit and default risks is by comparing data from the two leading national consumer reporting agencies. It also meets the needs of the numerous lenders who offer funds through dealers to conduct credit reports from at least two agencies. That is why in the general process of car buying creditworthiness checks will include information from both Equifax and TransUnion.
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