The lending organization will review your credit record and credit scores when you apply for an auto loan to receive financing for your next automobile to determine if you are eligible to be offered this loan and the suitable rate of interest. Nowadays, all lenders use a certain kind of credit score known as the FICO score to guide loan choices. FICO scores range from 300 to 850; higher numbers indicate better credit and, thus, less credit risk for the lender. Now, when determining whether to accept or reject your vehicle loan application or how much interest to charge you, which FICO score do auto lenders and dealers use?
The FICO Auto Score In fact, there is a large variety of FICO scores most of which target particular forms of credit facilities. One of the most recognizable scores used in auto lending and sales is the FICO Auto Score. This score was developed to provide an accurate estimation of the chances that one will be severely behind on auto loan repayments over the next two years. Auto lenders prefer the score because it lets them make decisions based solely on credit risk linked to auto financing.
FICO Auto Scores are between a low of 250 and a high of 900 and like all scoring metrics, the higher the number the lower the credit risk. The scale of the ratings is diverse; a score of 700 is generally regarded as very good, while scores below 600 will usually result in a higher interest rate or rejection of credit. The FICO Auto Score draws information from much of the same categories as other FICO scores, including past payments, amounts and seriousness of credit, length of credit history, types of credit used, and number of recent credit inquiries. However, now there is the FICO Auto Score which was designed to take into consideration more priority to that kind of information that is most relevant to auto loan repayments.
Understanding why auto lenders use the Auto Industry Option Score to make decisions about car buyers requires a closer look at how it works. Employing an industry-specific auto score provides the proper identification of risk and pricing based on the predictive factors inherent in auto loans.
Some types of information weighed more heavily in the FICO Auto Score include:
- By past due accounts and their frequency and severity in auto loans
- Number of auto loan inquiries done in the past month
- Whether the accounts have been opened for a long time or for a short time
- Proportion of auto loans to borrowers’ credit limits
Therefore, by focusing on factors that have been proven to be related to the default on auto loans, the FICO Auto Score gives dealers and lenders better tools for decision-making about extending credit to buyers of automobiles.
Min FICO Auto Scores for Dealers Since the FICO Auto Score is constructed to measure risk in auto lending, many auto dealers today rely on these credit scores when evaluating loan applications. Many dealerships set a minimum FICO Auto Score if the credit score is acceptable to approve the financing. For example:
- Primary Credit Band – FICO Auto Score greater than 660 New car dealers and largely used car dealers obtain credit from subprime lenders who set up interest rates depending on the prime credit standard for applicants with a FICO Auto Score of 660 and above. This tier usually affords the lowest interest rates on loans that are offered to borrowers. In this credit tier, applicants are considered very low risk hence, an essential part of credit risk management.
- Non-Prime Credit Tier – FICO Automotive Finance Score 621 – 659 For individuals in the non-prime category, the FICO Auto Scores start at about 621, and while they can be approved, you will be charged a high rate of interest. Secondary finance companies that offer these loans may be used by some dealers have specialize in such. This means that auto-loan applications go through a process where some of the factors that are considered include down payment as well as the applicant’s history of borrowing auto loans, among others.
- Subprime Credit Tier – FICO Auto Score 580-620 Credit score between 580-620 is considered to be in the subprime category, and while most of these individuals might be approved by the dealer financing, they are charged high interest on the car loans because of the high risk that they pose. Several of the used car dealers engage subprime lending firms to fish for finance applicants in this category. Usually, photocopies of paycheck stubs or bank statements and proof of auto insurance are necessary to secure the approval.
- Buy Here Pay Here Auto Dealers - Many of These Automobile Dealers Do Not Even Require the Buyer to Have a Minimum Credit Score. Some small independent used car dealers, have in-house financing or a buy here pay here option. Many of these dealerships either don’t run credit checks at all or if they do, they are okay with applicants with extremely bad credit scores. But interest rates are often quite high and deposits are more significant. It is regular and is normally paid weekly or bi-weekly.
What if I don’t have a FICO Auto score?
Lenders on the other hand for car buyers who do not have a FICO Auto Score will use other scores such as the FICO 8 credit score, or the classic FICO Bankcard scores. These scores focus on the same aspects but may place some significance on some aspects of credit card repayment, or the mortgage balance slightly differently.
At times, dealers also accept other score information, including a FICO score, but also a VantageScore, for example. However, FICO scores are used most often as the standard measure in the auto industry.
Quoting an article on checking the FICO Auto Score
It is important to note that dealerships depend greatly on your FICO Auto Score and therefore it would be advisable to review this score before applying for financing. If your score is low, you can look for a higher down payment or learn other ways of enhancing your score before filling out the credit application. This could in turn assist in enhancing the contractual strength of the loans and the interest rates that one could access.
To obtain your FICO Auto Scores and credit reports, you can go to the website of myFICO. com or directly to the FICO official website. Both of these are advantages of checking your score before going through the auto financing process as it removes some of the unknowns so that the consumer is equipped with the best information going into the bargaining.
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