How Your Credit Score is Determined

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How is your credit score determined? Your credit score has a huge impact on your life. A good credit score lets you
buy clothes, food, furniture, gas, even homes and cars, based on your promise and ability to pay. Bad creditwell,
lets just say its the opposite. With credit so important, how is your car credit score determined?

Car Credit Score

A car credit score shows your credit history. Like taking the SAT, an auto credit score is also supposed to have
predictive power about how youll pay your car loan in the future. The key things a potential creditor like a car
dealership (and the manufacturer they represent) is looking for in your car credit score is your ability to pay, your
stability, and your past credit history.

Your ability to pay is based on your income and expenses. If your income is $45,000, no matter what your car credit
score, the dealer will be dubious about your ability to afford a $50,000 BMW. Your stability doesnt refer to your
mental state, but rather to your history. Have you moved six times in the last three years? Have you switched jobs
twice in the last year or had long periods of unemployment?

Finally, and critically, the car credit score takes into account your past credit history. Do you have late or missed car
payments? How many? Worse, do you have any charge-offs (where you owed money for an extended period of
time and the creditor has given up on collecting it)? Any bankruptcies, judgments or other delinquencies will also
affect your auto loan credit score.

Its important to realize that a few blemishes on your credit score dont mean you wont get a loan, just as a few
blemishes on your face dont mean you wont get a date. After all, the dealer is in business to sell cars, which
means arranging financing. But just as blemishes may limit your dating universe, dings on your credit score may
limit you to less desirable loans.

Your car loan credit score is based on what is called your FICO score. FICO stands for Fair Isaac Corporation, the
company that developed the credit scoring methodology used today.

When you apply for a loan, a job, a credit card or to rent an apartment, your application is typically sent to one of the
big three reporting agencies, Experian, TransUnion and Equifax. They in turn sell the information in your report to
creditors, employers, and other businesses that use the report to evaluate your credit applications. A finance
manager at an auto dealership, for example, will use your car loan credit score to determine if they want to offer a
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loan, what terms and rates youll qualify for and how much theyll let you borrow.

Your credit score, or FICO score, is a three-digit number that can range from 300 to 900. Most people score in the
500 (poor) to 800 (excellent credit) range. The credit score is calculated based on your credit history, your
experience with creditors like banks, credit card companies, furniture stores and auto dealerships. A credit report is
divided into identifying information (like name and social security number), credit history, public records (like
bankruptcies, tax liens and judgments against you) and requests for your credit history.

If you read your credit report, youll see each listing notes whether it was installment credit, such as a car loan or
mortgage, or revolving, like a credit card. Each item would also list when it was opened, how long the account has
been reported, the high balance, and recent payment. A key line of a car credit report would list the status of the
account, whether it was paid on time, never late, or past due by the number of days. Comments like charged off or
default are particular red flags; they mean the creditor has made an effort to collect a debt and given up.

How is your credit score determined? Each credit reporting company uses slightly different versions of the scoring
model, and some data may be reported to one company thats not reported to another. Thats why before you shop
for a car, you should get a copy of your credit report from each of the three and contact the companies to fix errors.

Auto Loan Credit Score

To make things a bit more complicated, when it comes to get auto financing, dealerships may use your regular FICO
score, or more frequently, use a specific auto credit score, called the FICO Auto Industry Option credit score.

The bad news is that consumers do not have access to their Auto Enhanced Score. The good news is that you can
get a pretty good sense of what your Auto Industry Option credit score will look like from your credit report. And the
(potentially) better news is that even if you have a so-so standard FICO score, if your auto credit score is good you
may still get a decent auto loan.

The Auto Enhanced FICO score essentially provides a dealership with a 3-digit number that rank orders risk of
default for the next 24 months. If youve had previous car loans and have paid them promptly and in full (something
you should be able to see on your regular credit reports) you will generally have a good Auto Enhanced FICO score.
On the other hand, dings to your credit report for missing or late payments on installment loans for auto financing
can tank your Auto Industry Option score.

How is your Auto Industry Option credit score determined? As youve guessed, this car credit score puts a lot more
weight on how you handled previous auto credit. Late payments on a current or previous auto loan (or lease) will
weigh against you. Other problems would be settling a loan for less than you owed, having an auto account sent to
collections, and writing off your car loan in your bankruptcy. Repossession will also ding your auto credit score.

Such problems will affect your Auto Industry Option score more than your traditional FICO score. Youll be perceived
as a greater credit risk, meaning youll either be denied a loan or offered one with a high interest rate. On the other
hand, even if you have other credit problems, if you never missed a car payment, your auto loan credit score will
probably be better than your standard FICO.

This means the dealership may be able to offer you a decent car loan rate. However, as the Auto Industry Option
score isnt available to consumers. They dont have to even tell you the good news. That shouldnt stop you from
asking what your car credit score is, or if its better than your FICO.

So when youre ready to talk turkey with the dealer, keep your regular FICO scores in your back pocket. If the
dealership pulls your car loan credit scores and theyre better than what you have, go with it. If yours are higher,
show your cards; dealers often can choose which credit score they can take to give you a better rate.

If you dont like the answers you get from the dealer, or feel hes trying to get you financed at a higher rate based on
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your lower standard FICO score, you can always look for a better deal elsewhere.

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