Car buying and your credit score

This content is sponsored by PenFed

Although most people realize that a car dealer will want to check their credit before approving them for a loan, there are a lot of surprising nuances regarding how your credit score is calculated and used. Knowing before you go to the dealership can put you in a better position to negotiate.

What’s the Score?

There are three major credit reporting agencies that keep track of all your financial transactions with banks, mortgage lenders, credit cards, utilities, landlords and more. They use a variety of factors to help express your credit health — essentially, your likelihood of repaying a loan — in terms of a single number.

The most popular credit score is the FICO score, which is used in 90 percent of lending decisions in the United States. Ranging from 300 to 850, it takes into account your credit history (including how long your history is), your total debt, the types of credit you have, how many recent inquiries have been made into your score (personal requests for your credit score don’t affect this number) and more.

You may not realize that FICO provides different scores for you based on the type of credit you are seeking. So, your FICO Auto Score may be different than your credit card score. It will ignore certain data and consider other data based on how likely its algorithm judges you are to pay off a car loan specifically. It also takes into account a more detailed version of your recent credit history (for the past 30 months) across a wide variety of debt.

Timing Is Everything

Because credit inquiries affect your score, don’t consent to a credit check until you’re ready to apply for the loan. You don’t have to go through a credit check to take a test drive or to get a price quote. If the dealership demands this, consider going to a different one. Some dealerships will ask to run a credit report even for cash buyers. This may be due to their process for requirements under the Patriot Act. However, the dealership can also meet the Patriot Act requirements by  directly checking your name against a list of blocked individuals, thus eliminating the need to pull a credit report for cash buyers.

Before you shop, get copies of your credit reports for yourself. This is the best way to be a knowledgeable buyer. You can also get approved for a loan through your credit union instead of using the dealer’s financing. This can help you know exactly what you can afford even before you walk into the dealer and may help you get a lower rate.

For more information on the car buying process or PenFed’s current auto loan rates call 800-247-5626 or visit

PenFed is federally insured by NCUA.

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