How Do Car Dealers Check Your Credit Score?
How Do Car Dealers Check Your Credit Score?
Posted on March 12, 2021
For most people, buying a car involves taking out a loan to cover some or all of the cost. How easily you can get a loan, and how much you'll be charged for it, depends mainly on your credit score. Unfortunately, as with most matters financial, there are a lot of myths and misunderstandings around the topic of credit ratings, and it's important to know exactly what's involved in order to get the best deal you can.
Why is a Credit Score Important?
When a car dealer sells a car on credit, they're taking a risk that they'll lose their money if the borrower doesn't pay back the loan. They can reduce this risk as much as possible by only lending to people with good credit, or by charging people with poor credit more in interest to make up for the extra risk.
How Do Car Dealers Check Your Credit Score?
All lenders have access to a service provided by companies called credit bureaus, which keep detailed financial records on every financially active citizen and use them to calculate how risky it is to lend money to each individual. When a dealer requests a score, this is recorded on your file. A single request won't make much difference to your rating, but too many can add up to lower your score by a few points, so try not to apply for credit unless you're fairly sure it'll be approved.
Free Credit Check Tips: Improving Your Score
By law, you can check your credit for free with both of the major Canadian credit bureaus, Equifax and TransUnion. If your score is lower than you expected, it's important to get a full copy of your file and check it for any errors or missing items. It's your legal right to have any mistakes corrected, and doing this could make all the difference to your credit score.
Also, check for any small debts that you may have overlooked, but which you could pay off relatively easily. These can include items as small as unpaid library fines, which you may not even be aware of but are still hurting your credit score. Settling as many small debts as you can make a big difference to your score for bigger items like car loans.
But the biggest tip of all is to speak to your car dealer. Their experience means they can usually find a great deal for any customer, no matter what their credit history contains.