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When the time comes for you to lease or finance a new car, you will probably take a look at your FICO score to get a rough idea on where you stand. The problem with doing this is that there are many different credit scoring models being used today and it is not uncommon to have different scores. FICO score versions are updated to include new features that help lenders make better lending decisions and specific industries, such as the auto industry, use its own FICO scores in addition to a “base” FICO score when determining loan eligibility. Auto lenders determine your loan qualification by using a FICO Auto Score.
Let’s take a look at what exactly a FICO Auto Score is made up of!
FICO starts off by determining your “base” scores which are the traditional scores that range from 300-850 points. Industry-specific scores can range from 250-900 points. The calculation is then adjusted by determining risk behavior specific to that industry. Base FICO scores assess how likely you are to pay back a loan in the future while your FICO Auto Score will assess how likely you are to pay back a loan in that field.
Your auto lender will be looking for how you’ve repaid car loans in the past. Your past car loan history will have a high impact on your FICO Auto Score. A FICO Auto Score will allow lenders to see if you’ve had any late payments on a loan or lease, if you had any car repossessions, any auto account sent to collections, and if you included the loan or lease in a bankruptcy.
It’s also important to keep in mind that there are several versions of the FICO Auto Score. Regardless, the higher your score is, the higher probability you have of being approved and getting a better interest rate on your car loan or lease.
If you want to have access to your FICO Auto Score, you will probably have to pay for a credit monitoring service that gives you access to these specific scores. However, this won’t always guarantee that you will receive the same version that your lender uses as each lender pulls reports from either Equifax. TransUnion or Experian. Consider contacting the dealership’s financing department to ask which bureau they pull their reports from and which scores they use. Keep in mind that your income and down payment will also be used by auto lenders when considering you for financing. Do your homework first, this way you can be better prepared when you visit a dealership.
The best way to improve your scores and have a better chance of being approved with the best interest rate are to pay your bills on time, pay more than the minimum balance to bring down balances, use less than 30% of your available credit, and reduce the amount of inquiries by avoiding unnecessary credit applications. Also, get copies of your most recent credit reports and look for any errors in your reports because if there are any incorrect items, especially negative items reporting incorrectly, you have a right to dispute the errors. Give yourself adequate time to improve your credit health if you need to before you try to lease or finance a new car. Whether you know your FICO Auto Score or not, the most important thing is to continue practicing good habits to maintain great scores all around!