Rise in Complaints of Car Dealers Lying About Credit Scores
Published December 3, 2014
We've seen an uptick in complaints we receive from car buyers reporting that car dealers are telling them their credit scores are lower than they really are in order to charge a higher APR on their loan. Many car shoppers who supposedly have great credit scores are also being rejected after applying their car loan. Is this really true? Are the dealers lying? How do you prevent it from happening to you? We'll explain all of it for you and how to prevent it.
What is a credit score? What should it be to get the lowest APR?
First let us examine what a credit score is. The credit bureaus and lenders have come up with scoring systems that examine your credit history, and produce a credit score typically ranged from just under 300 to around 900, the higher the number, the better credit risk you are. This is like taking your financial pulse.
Each of the big three credit bureaus Experian, Equifax and TransUnion all have their own secret sauce of scoring models that look at your overall credit history to determine your score. The bureaus also tell you that they are giving you your score for informational purposes only, and they also tell you that lenders may calculate a different score than the one you get from the bureau.
Remember those utility bills that you were 30 or 60 days late paying years ago? Now it is all coming back to bite you in the butt, by lowering your credit score. You may have forgotten about your old past debts that you ran out on, but your creditors and the credit bureaus did not forget. They have painfully good memories.
Lenders use your score to determine whether you are a good risk for paying back your debts or if you are a bad risk. Folks with credit scores at about 800 will always pay the lowest interest rates. If you have shady credit or if you run huge credit card balances or missed a few payments over the years, your score could be in the mid-500 range, not so good.
Then you'll most likely get rejected for financing altogether, or you'll pay the highest rate allowed by law if you can even find a car dealer to finance you. Based on feedback from our CarBuyingTips.com visitors over the years, people with scores below 560 find it very difficult to obtain financing from any car dealer.
These folks end up with the dealer trying to coax them to find a co-signer; we see it all the time. But don't fall for that co-signed loan trick.
Below are the generally assigned categories for your credit score:
- Excellent: 750 and up
- Very Good: 720-749
- Good: 660-719
- Fair: 560-660
- Give it up dude: Any score below 550
In looking at the numbers above, remember each lender is different and they look at other factors beyond your credit score, such as debt load and monthly income.
For me, the only numbers that really matter are scores over 660, and you really should strive to get as high as you can above the 750 range before applying for new credit. For younger borrowers, you might not reach that high. When you see those commercials on TV for that Lexus you had your eye on and it says 0% financing, the fine print states "well qualified buyers only." This usually means a credit score well north of 700.
Inside the vortex of the scam, actual incidents from our visitors
Last June one of our CarBuyingTips.com visitors named Beverly contacted us and complained that every scam in the book was pulled on them. She said "They told my husband his credit score was 680 and it was actually 735. Now we have an interest rate of 10%."
That seems excessively high of an interest rate even for a score of 680. Her only hope will be to refinance their loan to a lower rate.
Last month, another woman named Moira told us "the finance person showed us on his computer a score that was almost 75 points lower than what it actually is. He was using it to justify charging a much higher interest rate. We decided to go to another dealership and hear what someone else would offer. The credit score came in much higher and we secured a lower rate."
Good for them, they saw the scam coming and dodged the bullet. The first dealership had told them their score was 653 via Experian and was charging 4.9%. The second dealership said it was 714 via Transunion, and they got the lower rate.
Why the car dealer's score will never match your score
People having been falling for the marketing from the credit bureaus for many years, thinking there is only one credit score available; the one they are about to sell to you.
There are actually thousands of possible credit scores, depending on the direction of the prevailing winds. You know the saying ask 100 people you'll get 100 different answers. Go to 100 dealers and lenders and you will get 100 different scores. There are a zillion ways you can slice and dice the data from your credit report to generate a score and everyone's formula is different. The dealers use a different software tool to generate your score than you do, so they will never match up.
The credit bureaus will tell you that the 3-Bureau scores are calculated by their own proprietary models, so if you order the 3-score from Experian, Equifax or TransUnion, each will give you a different number.
A good credit score does not guarantee approval or lower loan APR
It really stinks for some people how suspicious it is that the dealer's generated number often seems to be lower than the one you got from the credit bureaus.
The complaints we hear from our visitors show the average difference is 75 to 100 points. If the score that you obtained from the credit bureau shows you at 660, then the dealer's 100 point lower score makes it look like you are a deadbeat at 560, when you are in fact a financially responsible person.
The Auto FICO can sometimes be your doom
Adding insult to injury, many dealers run a particular type of number, called the Auto FICO score which is focused on automotive lending. That type of score tends to come in notably lower than your regular score based on feedback from our visitors. Remember to keep this in mind as you shop.
Many car loan underwriters want to see that you have prior auto loan experience before they approve you for a loan and they want confirmation that you paid your car loan monthly payments on time. If you have no prior car loans, and your dealer runs an Auto FICO, you will score low and they will reject you, even though you otherwise have a better than average normal credit score. This is like being cash rich and credit poor.
It is like the dog chasing its tail. How do you get a car loan if they won't take a chance on you? If this happens to you, call ahead to another dealer finance manager and ask them if they run the Auto FICO, so you can avoid them too if they do.
If you have prior car loan experience and you paid your bills on time, you should score well on the Auto FICO and even better if the finance manager runs a regular credit score on you.
Shoot for the moon with your credit score
Don't just work your score up to 700 and stop, thinking you are fine; you still have work to do. With the difference between your score and the dealer's calculated score, you need as much insurance buffer as you can get. Does a baseball team who is ahead by 10 runs put down their bats? No way, you need to keep on going, the fun is just beginning. I treat it like a sport repairing your own credit and bumping up your score.
Here is how the dealer low balls your score
Assume your score is 794, even if your dealer tries to shave 75 points off your score, that still leaves you over 700. You should still enjoy the lower APR rates. This is why you have to aim high, you want that strategic buffer. I'm untouchable no matter what they try. Many of our visitors exclaim to me their score is 700 and ask why they are not getting the best interest rates.
Well folks, I am not satisfied with a score of only 700, because we know some dealers will try to chisel 75 points off your number, downgrading you from the good category down to 625, which is in the fair category. We have heard from our visitors who just ran their own credit score and got 700 or more which is good.
Then the dealer runs their Auto FICO score, which focuses on their previous car loan exposure (or lack thereof). This score often comes in lower, so the dealer uses this to charge them higher rates.
Good litmus test shows if the dealer is low balling your credit score
So how do you really tell if the dealer is lying to you about your credit score? If you have your own credit history and score that you ran today and the dealer is telling you it's more than 50 points difference, that is a red flag. Subsequently, if they are charging you a higher APR as a result of your lower than expected score, you should go try another dealer in search of better results.
Many buyers over the years have contacted us with this exact problem. We tell them to go up the street to the next dealer. They usually get the financing they want at the other dealer, proving our suspicions right.
This is the best gauge of telling if the first dealer was lying to you. Maybe the first dealer was also using a scoring model that is way too harsh on you. But either way, getting the lower rate at the second dealer proves you were right, and vindicates the numbers you had, while condemning the numbers from the first dealer.
Don't give them any reason to deny you credit
Get your financial ducks in a row before you head out to buy a new car. Avoid getting blindsided in the finance office when you learn you have a low credit score and the APR will be 12%. Car financing should be a forethought, not an afterthought. You should be obtaining your own credit history before you go car shopping. Take a close look at what is on your report. See what is dragging you down like old baggage and repair it yourself. This process should be started a couple of months before buying a car.
If there are any errors in your report, file a dispute with all 3 credit bureaus to get them removed and bump up your score. By law they have 30 days to remove them.
If you had any 30/60/90 day late bills, see if you can get your creditors to remove any mention of it from your credit file. I have successfully helped many people over the years do this. You'll be surprised how many creditors will help you and remove a few black marks just by asking, but the answer will be no if you don't ask. I've seen it first hand and I've personally helped other people do this. Usually the next month you will see a speedy improvement to your score after bad marks are removed from your file.
Pay off your credit card balances to zero if possible. Why pay 21% APR anyway, do you want to be broke for the next 30 years?
Checking your own credit history does not lower your score
Many people erroneously think that checking their own credit history will somehow drop their score. This happens only if you apply for credit and the lender runs your report. You can get your own score as many times as you want and it won't drop.
We have even had a few car dealers tell people not to run their own credit report, because "it will lower your score." That is a lie and a scam, and probably skirting the Truth In Lending Act.
Of course they will tell you that lie, some dealers don't want you to know that your score is really higher than the dealership is telling you, so that they can charge you a higher APR on the car loan.
The laser printer is mightier than the sword and when they print out that low score of 560 off their computer, it's pretty hard to argue that fact with them; unless you pull out your own report showing 720 on your way out the door.
Here are a few closing points for you to remember:
- Time heals all wounds. The longer your credit history, the higher your score
- Charge offs and late payments drop off your credit history after 7 years
- Bankruptcies can stay on your credit history for 10 years
- Don't apply for loans during a dispute with a credit bureau
- Some lenders might only report your history to one of the three credit bureaus
- Your credit score can be different from today to tomorrow
- Car dealers and other lenders often run a different type of credit score than you
- Car dealers credit scores will be run at different times than yours
You should now be better prepared to deal with your credit and be able to receive the best rates if you can show a score way above 700. The bottom line is don't settle for good, settle for excellent, so when they chisel down your score, they have no leg to stand on, you will still shine above the crowd.
About The Author: Jeff Ostroff
A lifelong consumer advocate with over 20 years of unparalleled expertise, Jeff is the Founder, CEO and Editor-In-Chief of CarBuyingTips.com. As chief consumer advocate, he oversees a team of experts who cover all aspects of buying and selling new and used cars including leasing and financing.
For decades, Jeff has been the recognized authority on vehicle purchasing, sought out often by the media for his decades of experience and commentary, for live call-in business radio talk shows and is cited often by the press for his expertise in savvy car shopping methods and preventing consumer scams and online fraud. Jeff has been quoted in: CNN, MSNBC, Forbes, New York Times, Consumer Reports, Wall Street Journal and many more.