Is it time to finance a new vehicle? Then you’re probably trying to figure out how your credit score will impact your car loan. The FICO credit score often gets treated with the same reverence as the Coca-Cola formula. We know there is an algorithm used to determine our trustworthiness as borrowers. We know there are five major factors that go into your FICO credit score:
- Payment history – 35%
- Amounts owed – 30%
- Length of credit history – 15%
- New credit – 10%
- Types of credit in use – 10%
Even with all this information, there is still an air of mystery about the credit scoring process that only gets compounded by the fact that there are multiple versions. And not just old iterations that get updated, but specific industries have their own FICO scores! The auto-industry, for example, uses more than use your traditional FICO score when determining whether or not to offer you a car loan and what your rate should be.
This means that just looking at your credit score on your credit card statement or through CreditKarma doesn’t provide the full picture.
Different Types of Credit Scores for Car Loans
The FICO score used for a car loan is appropriately named “FICO Auto Score,” and it’s used in a majority of auto financing-related credit evaluations.
Lenders and car dealerships will probably use more than use the FICO Auto Score though. This is often coupled with the credit score you’re used to hearing about and seeing, known in the credit scoring industry as the “Base FICO Score.”
So, why do lenders need to use two different versions of a FICO score to determine if you’re eligible for a car loan?
The Differences Between Base FICO and FICO Auto Scores
The Base FICO Score helps lenders assess your likelihood of not paying back a borrowed sum in the future. This can be related to any and all of your credit obligations including a mortgage, credit card, car loan, student loan or personal loan. Base FICO scores range from 300 – 850.
The FICO Auto Score (and other industry-specific scores) focus specifically on the likelihood of you paying back a credit obligation in that field. So the FICO Auto Score will be weighted heavily by how you used car loans in the past, while your Base FICO score won’t have that behavior impact the score nearly as much. Industry-specific scores typically range from 250 – 900 instead of 300 – 850.
Ultimately, your lender will want to know if you’ve repaid your car loan(s) in the past. According to MyFICO.com, the FICO Auto Score will give lenders information about the following:
- Have you made late payments on a current or previous auto loan or lease?
- Have you ever settled an auto loan or lease for less than you owed?
- Have you had a car repossessed?
- Have you had an auto account sent to collections?
- Did you include your car loan or lease in your bankruptcy?
As you can see, lenders really just want to know you’ll pay them back. This is why even with the Base FICO Score, one missed payment can have big consequences on your score. And just like with Base FICO Scores, there are different versions of the FICO Auto Score, with FICO Auto Score 8 being the most commonly used right now.
In addition, another FICO Score exists. It’s the FICO Bankcard Score, which is weighted more heavily by a specific topic (like credit card use) but is still different than the industry-specific scores. It also ranges from 250 – 900, which is why people might see that they have a credit score above 850.
All the scores have one big factor in common: the higher your score, the less risky you look to lenders.
How Do You Know Which Scores Are Being Used?
You can get an approximation of your FICO Score for free through a variety of tools including credit cards and websites. Or you can pay to gain access to your official FICO scores. If you elect to pay for access, then you should be sure to pull the specific scores your lender is using.
Unfortunately, car lenders don’t wear big signs saying which versions of your FICO and FICO Auto Score they’re going to use.
However, you may be able to figure out the scores they’d be using based upon which credit bureau from which the lender pulls your report. For example, if the lender is determining your car loan based on an Experian credit report, then he’ll likely be using Auto Score 8 and 2. Equifax would be Auto Score 8 and 5 while TransUnion is Auto Score 8 and 4. The Base FICO Score will probably be FICO Score 8. You can find more details here on MyFICO.
You can also call and ask the finance department at a dealership which bureau they pull from or which scores they use before you go in to negotiate for a car loan. In order to get the best rate, you should also be doing all the research about borrowing for a car before you go into a car dealership. Learn more about how to borrow before you buy here.
Be Smart When Shopping for Rates
It is always smart to comparison shop when looking for a new car loan. If you are looking to explore your options, a platform like LendingTree is a good place to start. Some auto lenders will perform a hard pull on your credit when you apply for quotes, so the best strategy is to have all your hard pulls done at one time, which LendingTree does for you.
If you want to know how your credit looks beforehand, you can get your free credit score using their My LendingTree platform.