A loan is often needed to cover the cost of buying a car because it is such a big financial decision. If, on the other hand, the car dealer lied on your loan application—saying you made more money or that your credit score was better than it really was—you could end up with a car you can’t afford and a loan that could hurt your future finances.
Being approved for the new car under false pretenses can have long-lasting effects that may be difficult to recover from. Deceptive practices such as these often rise to the level of fraud, leading to a damaged credit history, having your vehicle repossessed, your loan defaulting, and legal liability. In this article, we review key red flags to watch out for and what to do if a car dealership lied on your loan application.
Do Car Dealerships Lie About Your Credit Score?
Buying a car is an exciting experience. Test drive different models, choose the best color, and drive off the lot smelling like a brand-new car. But it can be stressful to deal with car lots, especially when it comes to financing. A lot of buyers think that dealers lie about credit scores to charge higher interest rates. Okay, so do car lots really lie about your credit score? Let’s find out.
What Dealerships Can See On Your Credit Report
At a dealership, if you want to get a loan, they will check your credit report. This lets them see
- Your credit score – Payment history on past debts like credit cards or auto loans – Total balances owed – Length of credit history – Recent credit inquiries
They can also look at public records like civil judgments, bankruptcies, foreclosures, and tax liens. The dealer will use this information to figure out if you have good credit and what interest rate you can get.
Why Credit Scores Vary
There are three major credit bureaus – Experian, Equifax, and TransUnion. Each bureau calculates your score differently using proprietary formulas. So your credit score can vary quite a bit between bureaus.
You also don’t see the same credit scores at dealerships as you do when you check your credit. A lot of the time, they use scores just for cars, like the FICO Auto Score, which gives your past auto loan history more weight. These industry-specific scores tend to run lower.
For example, your TransUnion credit score could be 710. But the dealership might pull an Equifax Auto Score of 660 for you. That 50 point difference lands you in a higher interest rate tier.
Some Valid Reasons for Credit Score Discrepancies
Given the different credit bureaus and scoring models in play, variations between your score and the dealer’s are understandable. And in many cases, it’s not deception – just differences in methodology.
For instance, the dealer may be pulling an auto-focused score that highlights any negative auto loan history you have. If you’ve never had an auto loan, this score could come in much lower than your regular consumer score.
The dealership may also be pulling your score from a different bureau than the one you checked. And if there are any recent changes in your credit report, those may reflect in the dealer’s more up-to-date snapshot but not the score you last checked.
When Dealers Intentionally Lower Your Score
While score differences often have legitimate explanations, some dealers deliberately lie to customers about their credit. By making your score seem lower than it is, they can:
- Pressure you into accepting a higher interest rate
- Persuade you to use the dealership’s financing rather than shopping around
- Take advantage of consumers who don’t understand credit scoring
This underhanded tactic is more likely at “buy here pay here” lots and subprime dealers that rely on financing for profits. But it can happen anywhere.
According to consumer complaints, differences of 50-100 points are common when a dealer lies about your score. Enough to bump you into a costlier loan tier.
How to Spot this Unethical Practice
Watch for these red flags that a dealer may be deceiving you about your creditworthiness:
- They insist you use their financing without shopping lenders first
- Your score is significantly lower than credit bureau scores you’ve seen
- They say credit inquiries hurt your score so you shouldn’t check it yourself
- They refuse to show you documentation of the credit score they pulled
- The interest rate seems excessively high for your credit history
If you suspect something fishy, ask to see a copy of your credit report that the dealer pulled. They are legally obligated to show you. Compare it to your credit report from Equifax, Experian, or TransUnion. Are the accounts and details the same?
You can also walk out and apply elsewhere to double check your rate options. Just beware that multiple applications in a short timeframe can temporarily ding your score.
How to Protect Yourself from This Scam
Here are some tips to keep dealerships honest about your credit:
- Check your own credit score before shopping. Know where you stand.
- Compare quotes from multiple lenders besides the dealer.
- Get pre-approved financing so you know the rate you deserve.
- Be ready to walk out if a dealer claims your credit is worse than you know it is.
- Ask questions if the proposed interest rate seems too high.
- Carefully read all financing terms before signing.
While most dealerships are ethical, others prey on uninformed consumers. Having confidence in your own credit health is the best defense. Don’t let a salesman talk you into accepting a loan that takes advantage of you. Know your credit score, research your options, and be willing to take your business elsewhere. With the right preparations, you can drive off the lot knowing you got the financing you deserved.
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The dealer may have committed Auto Fraud
The minute you saw it on the lot, you knew you really wanted that new car. Unfortunately, you were approved for a car that you can’t afford and now you’re going broke.
It’s not your fault. Many dealerships are motivated by the commission they receive from financial institutions for arranging loans. Unfortunately, some dealers exploit this and engage in fraudulent practices, often without the lender’s knowledge.
1. Falsifying your income
One common form of fraud is lying about income. A dealership eager to close a sale might exaggerate your income on the loan application, making it appear that you earn more than you do. When this happens, you might be approved for a loan with higher payments than you can realistically afford.
The dealer might also manipulate your credit information to secure the loan at a higher interest rate. This means you end up paying more over time than if your financial situation had been accurately represented.
2. Power booking
Another tactic is power booking, where the dealer inflates the value of the vehicle by falsely claiming it has features that it does not. For instance, they might add non-existent upgrades like a rear-view camera or remote start to the list of features on the application. This can lead to a larger loan amount than the vehicle is actually worth, leaving you to pay significantly more than you should.
3. Yo-Yo financing
A particularly deceptive practice is yo-yo financing. In this scenario, after you’ve driven off the lot believing your loan is approved, the dealer may later claim that the financing fell through. They will then pressure you into signing a new contract, often with less favorable terms, such as a higher interest rate. If you resist, the dealer might even threaten to repossess the car or accuse you of theft.
Do NOT Let a Car Dealership Trick You into Pulling Your Credit
FAQ
Do car dealers pull a different credit score?
Consumer Financial Protection Bureau. ” CFPB Orders TransUnion and Equifax to Pay for Deceiving Consumers in Marketing Credit Scores and Credit Products. ” Car dealers and auto lenders typically pull a different credit score from the one you’ve checked online. Find out which credit score car dealers use.
Does a dealership check your credit score?
A dealership checking your credit score is a soft inquiry and won’t affect your credit. Your credit score will go down by points for every hard credit check that is done because you are applying for a loan. We talk a lot about credit scores and their impact on securing a car loan.
How can a car dealer improve my credit score?
Credit score: Pay all of your bills on time and keep your credit card balances low. This will help your score no matter what credit score a car dealer uses. This keeps your credit utilization low and helps you save money on interest.
How does a hard credit check affect a car loan?
Any hard credit check triggered by a loan application will appear on your credit report, shaving points from your credit score. We talk a lot about credit scores and their impact on securing a car loan. When applying for any kind of loan, a higher credit score usually means faster approval and a lower interest rate.
What happens if you get a car loan at a dealership?
If you fill out and sign a car loan application at a dealership, the dealer may submit the financing request to several lenders. This is called shotgunning. Each lender may then investigate with a hard credit pull and verify the information.
Do car dealerships run hard and soft credit checks?
Car dealerships run hard and soft credit checks. Often, car dealers want to size up the borrowing capability (credit risk) of a shopper before investing the time and trouble involved in test-driving different models.
Can car dealerships lie about your credit score?
Yes, and it’s more common than you think. However, if you discover a car dealer lied on your financing paperwork or application, there are steps you can take. First, contact the dealership’s management or customer service department and request they correct the information and renegotiate the terms of the loan.
What is the minimum credit score for a car dealership?
While there is no fixed minimum credit score requirement for accessing a car loan, most standard lenders will look for a credit score of around 600 or higher.
What credit score do you need to buy a $30,000 car?
To qualify for a $30,000 car loan, most lenders prefer to see a credit score of at least 660 to 700. That being said, your credit score is only one part of the equation. Lenders will also consider: Your debt-to-income ratio (how much you owe compared to how much you earn)
Why is my credit score different at the car dealership?
Dealers often check scores from multiple credit bureaus to secure the best loan terms. Customized Scores: Some dealers use specialized auto industry-specific scoring models that weigh factors differently compared to general-purpose credit scores.