Many times, car buyers might not have enough money to pay outrightly for a vehicle, and as a result, they make a proposition to car dealerships to get a mortgage or an auto loan from them.
This is a very common occurrence, and car dealerships have been known to engage in auto loans and car mortgage deals, but they also have to protect themselves and know that you can pay.
Sometimes they want assurance that comes from more information than what you have provided to them, For this reason, they ask to run your credit, while some even illegally run your credit behind you. So, what happens when a car dealership runs your credit?
When car dealerships run your credit, they have access to information about all your financial history, all the loans you have received, all the ones you have paid back, all the outstanding debts you have, and all other credit-related information.
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Can a Car Dealer Run your Credit?
Yes, a car dealer can run your credit, but he has to do it with your permission. Doing it behind your back is illegal and the car dealer can be persecuted if you find out.
It is understandable, the need for a car dealer to want to run your credit from the source itself, not depending on only the information you give to them
Every business owner wants to see if the person they are giving credit to can pay back their debt, how they have fared in previous loans that they have received, and whether they have any other credit commitments that might hinder them from fulfilling their obligations on the auto loan.
The downside with this is that the car dealership will then have access to every single detail of your credit history and your financial life, and this is not healthy for anybody who has something they don’t want to get out there.
How Many Times Should a Car Dealership Run your Credit?
One time is enough to get all the information you need. Running your credit is also termed as making a ‘hard inquiry on your credit, and this affects your credit score. The more your credit is run, the less your score becomes.
However, depending on how you are trying to apply for the auto loan, your credit can be run more times than once.
For example, if you are applying for an auto loan in a car dealership that is not its lender, meaning that it has one or more financial institutions who act as a third-party lender, even after the dealership runs your credit, he takes the loan proposal to the third party financial institution who will do their hard inquiries, That makes it two.
Many times even, the dealership can proposition as many as ten financial institutions who all run their hard inquiries on your credit history.
This is called ‘rate shopping,’ and if the computers at the Credit score reporters company flag these inquiries as rate shopping, your credit score won’t be affected very much.
Therefore, depending on the situation surrounding your auto loan, you can have it run once, or even up to thirty times.
What Happens When a Car Dealership Runs your Credit?
When a car dealership runs your credit, they have access to all your credit details, such as the loans you have received, the loans you have paid back, the number of times you have defaulted, every credit card you have gotten, the loan obligations you have at that present moment, and all the history of your financial life.
This information will be made available to them, and that’s fair because they have to know if you are capable of paying back any auto loan you get, and how you fared with loans in the past.
However, they cannot run your credit behind your back. It is illegal. Usually, they don’t have any reason to. Once you sign the credit application, you technically give them the approval to run your credit history.
The issue with running hard inquiries such as this, though, is that it tells on your credit score that a hard inquiry was run, and it stays for a little over two years. This impacts your credit score to a degree, which can be bad for you.
Things You Should Know about Car Loan Credit Reports
Here are a few things you should know about Car Loan Credit Reports.
1. The Information Involved
The two basic pieces of information that your credit report gives to your car dealership are your credit history and your credit score.
This helps the car dealer know that you are a credit-worthy person, and know what type of loans you have gotten in the past and how you have fared on them.
2. You Get Your Credit Run Even When You’re Paying Cash
This is to follow the protocols laid by the federal government to confirm the identity of the buyer who is paying cash for a vehicle, and what better way is there to verify your identity other than to run your credit?
3. You Have to Fill Out and Sign the Credit Application
This isn’t only for verification purposes, but also to protect the car dealers from any kind of fraud that the buyer might want to perpetuate.
Therefore, it might seem like the car dealer is trying to rush you to fill out the credit application for this reason. Also, the credit application, when signed, gives them the legal right to run your credit to see if you are creditworthy.
4. Hard Inquiries Can Hurt Your Credit Score
This is particularly true for the first hard inquiry run on your credit. It affects your credit score significantly, but if consecutive inquiries are run, they don’t have as much impact as the first inquiry, because the FICO’s system will regard it as ‘rate shopping.’
5. Signing a Credit Application
Most of the time is tantamount to giving the car dealership the legal right to run your credit, especially if it was a part of the form you signed.
If a car dealership runs your credit without you signing a credit application first, or without you giving the go-ahead in any form, then they have committed a crime, and you can report them.
When you want to get an auto loan or mortgage, you have to show that you are credit-worthy, and the best and only way to do that is by allowing them to run your credit.
Running your credit has an impact on your credit score, and will give the car dealer access to all your credit history, whether or not it is relevant to their cause.
You might be thinking, you will just pay cash then, since you don’t want your credit score affected, still, you have to confirm your identity, and most car dealerships will do that using your credit details.