You might not have known it, but you have two credit scores. One is your FICO credit score, the other is your FICO Auto Industry Option Score, or just Auto Credit Score.

The latter score helps the auto dealerships and auto lenders decide whether you can make a good risk for a car loan. FICO creates it specifically for auto lenders so they can easily determine your loan qualification, interest rate, and the down payment required.

Auto Credit Score 101

This is good news even if you have been working hard to raise your credit score. You should know that about 90 percent of financial lenders decide whether to extend you a car loan based upon your auto credit score.

Auto dealers calculate your score using your previous auto loan history. While they do look at your overall credit history, they do not use it as a bank would for making a mortgage decision or as a credit card. Many people obtain an auto loan through dealer financing, but cannot qualify for a mortgage or a credit card.

Why Do Auto Lenders Take This Risk?

Automotive dealerships did not do this lightly. They did not arbitrarily decide to dole out money. These lenders loan to so many people because financing research studies have shown that even those with poor credit histories and credit scores keep their auto loan payments current although they might let their credit card payments get behind.

This makes purchasing a car a terrific way to re-build your credit so long as you can make all of your payments on time.

Obtaining Your Auto Score

Just as you can find out your credit score before attempting to obtain credit, you can also obtain your auto score. This does not come from the three major credit bureaus. Private companies like SmartCredit.com include the auto score with the rest of your credit report when you purchase their service.

What Does the Auto Score Use?

Your FICO score and your auto score do have quite a bit in common. Here is a list of the items they have in common. These are heavily weighted in the auto score calculations:

last two years of overall credit,
any auto lease or loan settled for less than the original amount owed,
late payments on an auto lease or loan,
an auto lease or loan sent to collections,
any lender repossession.

Auto credit scores also range between 350 and 850, another thing they have in common with FICO credit scores. FICO also generates an industry-specific auto score, but its score range varies from 250 to 900. Although these use the same essential scale, the algorithm to determine the score differs. Your score falls within one of five categories:

Excellent or Great, 775-850,
Good or Very Good, 685-774,
Average or Normal, 615-684,
Poor or Below Normal, 515-614,
Bad or Very Bad, 250/350-514.

How to Improve Your Auto Score

Obviously, like the FICO score, your auto score determines whether you will get a loan and at what interest rate. Also, just as you can improve your FICO score, you can improve your auto score.

That might seem odd since most of it is calculated by your payment history on cars, but you have nothing to worry about if this is your first car since you would have no auto score history. Otherwise, you already have a vehicle. That means you are already making payments.

Make all of your payments on time.
Make lump sum extra payments when possible.
Pay for your insurance on time.
Never drive without insurance.
Pay your credit cards and other loans on time for at least six months in a row.

You can raise your auto score within six months just as you can your FICO score. You just need to do the above five things.

Keep your credit utilization at 50 percent or less. The less credit you are using, the better. Even auto dealers do not want to lend to someone who has overextended themselves. Your proactive approach to improving your credit can mean the difference between a no loan and a great interest rate.

Every lender differs. Some want to use your FICO score while others develop the auto score and use it. Some may use a mix of the two scores. You will not know when you apply, so improve both scores as much as possible. Some use your FICO Auto Score. Yes. There is one. FICO also creates multiple versions of its FICO Auto Score. It bases it on your generic FICO Score, then alters it to better predict how likely you are to repay an auto loan.

Here’s the other deal. Those are far from the only applicable credit scores. While FICO creates its auto scores it also generates other scores and so do rival companies.

FICO vs. VantageScore

FICO Score 8 and 9. This refers to FICO’s latest generic scoring models. These are the credit scores that auto lenders typically use as a base score when developing their auto score.

VantageScore 3.0 and 4.0. VantageScore uses two different credit scoring models. Vantage is a credit scoring agency jointly founded by Experian, TransUnion, and Equifax. These two scores are the go-to scores for more than 70 percent of auto loan and lease decisions, according to a 2017 VantageScore Solutions and Oliver Wyman report.

How to Check This Score for Free

Maybe you do not want to have to register with a company that conducts a regular score check like SmartCredit. You can still obtain this score and you could do so for no charge if you know where to look. Try the following options for obtaining your auto credit score:

banks and credit unions,
credit card issuers,
private student loan lenders,
selected online financial product comparison sites,
credit and financial counseling organizations.

Those options can include your auto score. You can obtain your FICO Score 8 from Experian for free. Another option for the FICO only score is AnnualCreditReport.com.

Understanding Credit Score Repair

Let’s say you have done all of that. Awesome start. Then you check your score though and it is still not that great. You have an auto score that is way too low and you seriously need to raise it so you can get a car. Hey, you can do it. You do not need to subscribe to one of those credit repair companies. You can do it yourself.

Here is a quick, step-by-step method for repairing your credit. Follow this process and you will raise your credit score.

1. Shrink Your Credit Card Balances

You need to reduce your balances, eventually paying them off totally. Credit should be an option not a need. You need to reduce your credit utilization rate. That refers to the percent of your revolving credit limits in use. You can calculate your utilization rate, by totaling your credit card balances and totaling the credit limits. Divide your total credit card balances by your total credit limits. Keep your utilization rate as small as possible. Using more than 30 percent of your available credit is considered a high utilization rate.

2. Consolidate Your Credit Card Debts

This can help you afford to pay down your credit card balances quickly. Whether you choose to use a non-profit that lets you consolidate and negotiates reduced balances for you or you take out a debt consolidation loan to pay off the balances as is, this choice works effectively to instantly improve your credit. Using a non-profit can result in a reduction in the amount owed by 40 to 60 percent before you even make a payment. That is because the consolidation organization organizes negotiations of reductions that significant.

3. Keep Your Credit Cards Open, But Not Charge to Them

This is if you choose the loan option. When you close a credit card, you lower your available credit and increase the utilization rate. The non-profit option immediately closes all of your cards. This option is not one to use if you need your credit utilization to contribute to your credit score.

4. Pay Your Bills on Time

A single late payment can hurt your credit score. Make sure you have at least six months on-time payments before you apply for an auto loan.

5. Put Off Other loans or Credit Applications

Every credit application or loan application dings your credit score. That is because each one costs about five points. If you get approved, you will also take a little hit to your score because while you will raise your utilization rate by having available credit, you open another account and probably add to your existing balances.

6. Pull Copies of All Your Credit Reports and Examine Them

Analyze all three for errors, especially accounts that you do not recognize or incorrect reports of payments. Dispute incorrect items, so they can investigate your dispute. They will validate the info and either update the report or delete the information.

How It Works

Perhaps you will end up getting a regular loan from a bank and using it for your car or truck. If so, they will use your generic credit score. You probably have pretty good credit if you use this method because you can obtain a regular loan. If you opt for this type of a loan, we can help you find a suitable lender. You just need to fill in the form below, and we will connect you to a lender:

Okay, let’s say you do not have the greatest credit. Meh. It happens. You can probably still get a car loan. You start at the bank. Your bank says no. Uh oh. You move on to your spouse’s credit union. Frustratingly, they say no, as well. You still have options and this is where your auto dealership comes into play. Many auto dealers cut a deal with a local financial lender to offer on-site financing.

That means you can apply for a loan from the dealer. Sounds odd?

Well, they do not actually give you the money. The bank they partnered with puts up the money. They simply write the loan while the bank underwrites it. Now, two modes of loan life stem from this. One, the bank keeps the loan. They are the ones you make the payment to each month. The other mode is that the dealership buys or transfers the loan from the bank to itself. You make payments directly to the car lot.

While this is an almost sure-fire way to get an auto loan, it costs more. The interest rates will be sky-high. They can get up to 25 to 30 percent. This is because dealer financing is the last available option. The car lot is the boss and you cannot qualify for anything else.

Your auto score means the most at this point and the bank option. It means the difference between a cheap loan and a costly one. Don’t get me wrong. You can get a decent financing rate through the car lot. You must have a high auto credit score though. This is less likely if you don’t have a high FICA credit score. It is still possible though if you previously purchased a car and made all of your payments on time. Since that provides the largest contributing factor to your auto credit score, you could still manage a decent auto credit score.

Auto Loan Process at Dealership

Here’s a confounding factor:

You would think that since you obtain the loan from the car lot itself, you would make all your payments to the car lot. This is often not how it works though.

Often, the car lot only holds your loan long enough to sell you the car. They then either sell it to the financial institution that partnered with them to offer the financing or to a third-party firm that manages the loans. Since the car lot simply wants to sell cars, this is what it prioritizes. That is why many people who cannot obtain a credit card can get an auto loan from the car dealership.

This means you will not even make a single payment to the dealership. You will make your payments to the bank or financial institution that the dealership partners with or the third party firm that manages the loans. The car lot will either provide you with their address when you sign for the car or you will get a notice in the mail, generally, within two weeks of driving the car off of the lot.

This may seem confusing, but it really is not. It’s just how they do things. It also will be your only option if you have a not so great credit score. While the national average score hovers around 700 and currently is 706, many people fall on the bottom side of that average. Credit scores, after all, have a wide range of 300 to 850 or 900, depending on the credit bureau.

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What happens the first time you buy a car?

You have to have existing credit to obtain a car loan. Whether the loan comes from the bank, credit union or car lot, you need to already have credit.

If you are still in high school, you cannot obtain a credit card yet, so that probably sounds like a catch-22. You will need your parent or guardian to co-sign a loan with you. The car dealership or bank will use the adult on the loan application’s credit score and/or auto credit score to determine the annual percentage rate on the loan.

Adults without credit can establish credit a few ways in a six month period of time.
Obtain a store credit card.
Obtain a gas card.
Make all payments on time.
Pay off the balance every month.

At the end of six months, you will have established a credit score. You need at least a 550 score to obtain an auto loan. Most banks and credit unions look for a 650 score. They will use this data on which to base your first-time car buyer auto credit score.

To Sum Up,

You can get an auto loan no matter what your credit history. You will need to establish a credit history if you currently have none. If you have a low credit score, you will need to work to repair it first. Both of these items require six months of on-time payments and a healthy debt to income ratio.

You may need to get your first car loan from the dealership using a dealer financing agreement, but you can get a car loan and that means you can get the car you need.

Auto Credit Score Overview for a Speedy Approval