The Inside Scoop of the Business Office in a Car Dealer

Did you know.....
That the FICO score you see is not necessarily the same one the bank sees?

Yes, it is true. Many lenders for cars and mortgages use a different variation of the FICO score you see.
The scores you see and get are a general score. It is a good guide to your credit health.
However, scores are tweaked according to what lender is looking at it for what type of loan.
For example, you know your score is 705. Credit Karma says so.
The dealer runs a Trans Union credit report and it comes back 705. Ok, a match.
Both scores are FICO scores, an industry standard score.
The dealer figures a rate of 5.9% based off your 705 score and sends it off to Bank ABC.
Bank ABC approves it but at a higher rate of 6.75%, not the 5.9% the dealer offered.
The finance guy calls the bank and asks why the difference?
Well the bank says that a score of 698 qualifies for the 6.65% rate.
The finance guys says it's 705, not 698. The bank answers that they don't use the FICO score, they use a different score for auto loans. It's like a FICO but is marked an AU score, not FICO. The AU score is a more accurate score that has to do with auto loans. Many dealers run FICO scores and many run the AU version. So, the bank asks the finance guy to fax the complete FICO report so they can "justify" the lower rate to the underwriters. The deal gets done but it shows that not all credit scores are equal. The AU means AUto score.

The AU score looks more closely at your previous auto payment history. If you had 2 different loans over the last 7 years with every payment on time, your AU score may be the same or a few points higher than the FICO. If, on the older loan, you had 1 or 2 payments that were late but caught up and were never late again, then the AU score would come in lower than the FICO because it tracks auto loans more closely. The FICO score tends to "forgive" a blemish that is over 3 years old so that's why the higher score. The AU score is less forgiving.

On the flip side, if you have 7 lines of paid credit and 4 were car loans (of the 7) and every payment was perfect, your AU score could be higher than the FICO, even if you had 1 late payment on a credit card last year. The AU cares more about your auto history and less about the overall history. Both scores would be lower due to the 1 late credit card payment last year but the FICO would penalize you more than the AU score.

The same thing applies to mortgage lenders. They have a specific score for mortgages. If you have had a few different mortgages over the years, and those lenders sold your mortgages several times, you have a nice list of opened and closed mortgages that were paid perfectly. This gives you a higher mortgage credit score. If you had 1 or 2 late mortgage payments over the last 7 years, your score will be severely affected. They hate late mortgage payments, even if it was over 3 or 5 years ago. You often have to write statements as to why you had those late payments which is sent to underwriting for consideration of your mortgage approval.

The point is; Your FICO score is not always your actual credit score. If you are close to a cutoff, (700 to 699) tread lightly.

@larryh1108

I gotta ask something. I won’t admit I’ve read every post in all these threads, but I’ve scanned them. It seems to be really good info, but the way it’s provided is really distracting for me to read. Are you intentionally adding a Return/Enter at the end of your row of text? Not sure if you’re using a computer or not. Here’s an example of what I’m taking about.



It’s bugged me enough that I’ve edited most of your posts to get rid of them. If you only view them on one device, it may never show up to you. (I’ll be editing the one above once I post this).

If you’re intentionally adding the return, just let it automatically wrap around. If not, I’m curious what the issue may be.

Waylon,
I think I am guilty of both. I use the return and I let it wrap.
When I read posts, I hate the ones that are continuous, without breaks so I consciously and deliberately hit enter when I change a thought.
Other times, when I am deep into an explanation, I let it wrap. I never see it on a mobile device, I only use a laptop, so I imagine each screen views it different.
As I write this, now, I see myself hitting enter when each sentence ends, to separate thoughts. I am guessing this is the problem.

I do notice that when I am editing a post, they appear like your example. I will try to not hit return except when I want a new paragraph.

larryh1108 said:

Waylon,
I think I am guilty of both. I use the return and I let it wrap.
When I read posts, I hate the ones that are continuous, without breaks so I consciously and deliberately hit enter when I change a thought.
Other times, when I am deep into an explanation, I let it wrap. I never see it on a mobile device, I only use a laptop, so I imagine each screen views it different.
As I write this, now, I see myself hitting enter when each sentence ends, to separate thoughts. I am guessing this is the problem.

I do notice that when I am editing a post, they appear like your example. I will try to not hit return except when I want a new paragraph.

Click to expand...

I agree that walls of text can be annoying.

I’d just think it would be easier if you only hit enter at the end of a sentence...add an empty line if you’d like. What I’ve been seeing looks like Enter being hit at the end of a line of text, but not the end of a sentence.

Good info either way!

Managing your credit report.

As we all know, our credit score is a very important number. It can save us or cost us thousands of dollars in interest paid over the life of several loans. Sites like Credit Karma, and sililar, offer suggestions on how to improve your credit scores. MOst of them are common sense but if we knew what affects the scores the most, and manage those, we can increase them without much trouble.

The most obvious way to a good score is to pay every bill, on time. If you are stuck between 2 bills in a given month, pay the one that shows on your credit report over one that does not (like a light bill or a cable bill, etc). Most times rent payments are not reported as well but the bigger rent corporations started to report payments. Make a car payment over a credit card payment. Make a mortgage payment over a car payment unless you never plan to get a mortgage again. Certain missed payments have a bigger effect on the score and how far it drops.

Aside from missing a payment, other huge score killers are also obvious. Collections, Civil Judgments and Bankruptcies. All damage your score a lot. 100+ points or more. A 720 score can now show up as 598 with a collection on your credit. Collection accounts are nuisance accounts that usually involve smaller unpaid bills. These included parking tickets, medical bills, unpaid cable or light bills, etc. Collection agencies use the credit bureaus as a leverage to get their payments. If that doesn't getpayment, they bang your report. If your credit score already sucks, another collection won't do anything more than lower it a bit more. Big Deal. 550 or 525, both suck and both prevent new loans (to a degree).

A fresh collection (<1 year) can influence the sub-prime lenders to either bump the rate up even higher or to turn down the loan altogether. They see fresh credit problems as a sign of deeper, unknown issues that will affect your ability to pay a new loan. Fresh bad credit is practically a kiss of death for a new loan.

Civil Judgments (CJ) are court records and are more serious than collections. A CJ is like a collection account but on steroids and PEDs. Collections are usually small enough that when affected party does not want to add more money to the loss by adding in court costs and lawyer fees on top of the bad debt. If you aren't paying for the bad debt, adding hundreds of dollars on top of it will be money lost as well. The collection's punishment is banging your credit and it's effective. The purpose of a CJ is to proceed to a wage garnishment for a forced repayment. A successful CJ paves the way for a Wage Assignment. These balances are a lot higher and more worthwhile to take to court. If they get the judgement, they get to tack on the attorney's fees and court costs as well as the money needed to get the wage assignment to payroll. CJs are usually for larger dollar collections. Apartment complexes are a usual plaintiff. 5 months at $1000 plus fees can equal a juicy $7000 judgement. Credit card companies that you still owe 4 figures to like to sue as well. They have lawyers on staff and they will surely make you pay.

Large medical bills usually go to court for a CJ. They can garnish wages with a successful CJ and some medical bills are $50,000 to $200,000. That's a lot of money to owe after a lot of grief from something tragic. Other CJs are various lawsuits from auto accidents, neighbor beefs, divorce settlements, unpaid child support, etc. The list is as endless as the amount of lawsuits filed every day. It's endless but if you lose, it shows up on your credit. Student loan defaults, and tax liens are also forms of CJs. They don't go away. They can't be bankrupted. They are joined to your hip forever and affect your credit score for as long as you owe them.

The light at the end of this tunnel is that these bad marks fall off your credit report in 7 years. If the collection if filed on 6/1/2012 and you do not make a payment, it drops off on 6/1/2019. If you make a payment of any kind, it marks a new date to start the 7 year drop off. Once they drop off, your credit score rises to reflect a clean credit report.

The next obvious hit to a credit score is a bankruptcy. There are 2 kinds of personal bankruptcies, a Chapter 13 and a Chapter 7.
Both show on a credit report. Both are bankruptcies and tank the credit score. However, in a Chapter 7 bankruptcy (BK7), all of your open credit is thrown into the pool and unless you reaffirm something (like a house with no equity or a car) everything is wiped out. You start from scratch and everything you took down is shown as closed from bankruptcy and remains on your report for 7 years. After 7 years, it drops off as mentioned above. However, the actual bankruptcy record stays on your credit report under the Civil Judgments for 10 years, not 7 like the other discharged items. This keeps your score down (with a listed CJ) for 10 years. Once 10 years passes, it drops off like the other discharged debts. You cannot file another BK7 for 7 years, by law.

The Chapter 13 Bankruptcy (BK13) also stays on your credit report for 10 years but since the BK13 is a repayment program, it takes longer to drop off since you are making the payments. The bad credit drops off after 7 years from the last payment.

A Chapter 13 is filed instead of a Chapter 7 if the debtor has assets he doesn't want to be messed with. Things like home equity, a paid car, a 401k, etc can be seized to pay back creditors. When someone files a Chapter 13 it means his bills each month exceeds his income. This can be due to loss of job, illness, divorce, etc. In order to protect his assets, the debtor agrees to pay everybody back, thru the courts, in 1 lump sum each month. All of the creditors agree to not pursue any further collections or wage garnishments (they really have no choice, legally). Like every creditor in the proceedings, they get a payment each month from the courts, usually less than their original payment. If all the payments, combined, came to $3000 per month and the debtor now collects only $2500 per month (clear) then the lump payment to the courts is reduced. The courts decide how much of the $2500 (clear) income is used to pay the courts. So, if the debtor has $300/month going to his 401k, the contributions stop. If he has $300/month going to savings, that get stopped. He now gets $3100/month (clear) to pay his debts. The courts then looks at a 3 year or 5 year repayment plan (they decide, not the debtor). Interest charges are suspended, only principle is considered for repayment.

The courts decide the outcome. They will probably drain any savings and/or stocks to pay the creditors. The first things that gets paid are the secured debts like a mortgage, car, etc. A mortgage is probably 3, 4 or 5 payments behind so the entire amount is not due but the past due amounts are. The same with a car. Usually a car goes out for repo if it's 3x late so the amount behind is not a horrific amount but these add up. Also, a creditor has to accept the court's decision of the distribution of payments or they can pursue other legal means to get their money.

So, in a BK13, you have to pay a monthly payment to the courts. If you are working full time, they often take it from your paycheck and you get what's left over. Many times the courts will tell you that your rent or mortgage payment is too high and you have to find a cheaper place. If you refuse and you get a check for $152 each week after the court ordered amount, then you have to figure out how to eat. The courts don't care. A 2nd job is likely an answer. So, the payment plan is usually 5 years. If you make every payment, on time, for 5 years you are released from any further back debt and get to start fresh but your credit report is littered with closed and paid charged off accounts. The 7 years starts when you make your last payment so that makes it a 12 year credit report penalty.

There's no need to discuss paying all of your loans and credit cards on time. It's common sense. As discussed, if money is tight, pay the bill on your credit report before you pay one that is not. Getting your cable shut off for a week is better than having a late payment on your credit report.

I was surprised that a lot of people didn't realize that a payment does not show up as a late payment on your credit report unless it hits a month old. This means, you are considered current (for reporting purposes) if you make your payment 22 days late. If you hit another due payment, they will bang your report. However, you will be hit with that $35 late fee if you are 1 day past the due date. These companies depend on these late fees to make a profit. So, unless you are a full month late, you r credit report will not know or report it as late. Actually, their criteria is 30 days late, 60 days late and 90 days late as late reporting. So, a week late means a late fee but not a credit report blemish.

With that in mind, I've had car loans turned down by the factory lender for consistently being late. Let's use GMAC as an example. GM offered their special 2.9% for 72 months financing as a special during a model year clearance. To qualify for this special rate, you need to have pretty tight credit. Somebody came in for this special and they had several successfully paid GMAC loans over the years and had a +700 FICO score. However, GMAC turned down the loan due to the fact that the customer's last GMAC loan (which showed perfect payments) was habitually 25 days late. This guy knew how to work the system and GMAC pulled his old accounts for review. He did get approved at a bank for 5.9% but his payment went from $426/month to $466/month. Not the end of the world but his total interest paid went from $2500 to over $5300. It cost him $2800 in extra interest. That's not chump change.

Finally, I wish to share some pointers in maximizing our credit reports and scores. There are a few "tricks" to getting the highest score without doing a lot in the process. We've discussed how even 1 30 day late payment can affect your score for up to 3 years. A 30 day late mark just kills perfect credit.

Something that affects your score a lot is what is called the ratio between how much credit card credit you have available to how much is actually being used when the report is run. A bad ratio can tank your score of 30, 40 points or more. A good ratio can enhance your score to it's highest level for your situation.

How this works is like this;
Your credit report totals the limit (max) of each open credit card. This included your Visa, Master Card, Discover, Sears, JC Penney, Lowes, etc. If all total you have $10,000 in available credit, that is your credit limit total. If you have less than 30% being used when the report is run (let's say you have $2700 used), the ratio shown is 27%, which is less than 30% so your score is not affected in a negative way. If you use 30%-50%, your score drops 10-20 points, if not more. The algorithm reads a high credit card usage as a bad thing because your minimum payments rise. It also means, to them, that you are having a cash crunch (why else do you need a charge card?). So, your FICO goes down. If you go over 50% of available credit used, it bangs you even more. If you go over 70%, another drop. If your cards are all maxxed out, even if you pay every card on time, every month, you get banged to a point that a 720+ score with $0 in credit card usage, you will be in the 670s-680s or less, if maxxed out. As you know, this low score will affect your loan applications with higher interest rates.

As a matter of fact, if your cards are all maxxed out, the chances of getting a loan of any kind are practically nil. even with a 680 score. The reasoning is, you don't have enough available cash presently because your cards are maxxed out so extending any kind of new loan is not only stupid, it just won't happen. This credit card usage % is a big factor in your FICO score. Keep your cards at less than 30% to get the score you want. Keep the balances at $0 and you will get the bast score. If you pay off your cards every month, your score will reflect that. Pay the minimum each month and they know you are having a cash flow problem (for whatever reason).

Let's say you have 1 credit card and you only use it for emergencies. Let's say it has a $2500 limit but if you don't have anything on it, you should charge gas once a month to show a monthly payment every month (this is better than never using it at all). Your credit report is a tool to show how you handle credit. Not using a credit card at all shows up as inactive on your report. Not having to make a monthly payment does not help prove you can handle credit. It shows you choose to not use credit at all. So, your score is depressed some because you aren't showing any ability to pay on time. Yes, paying all in cash shows more responsibility but as far as credit goes, you aren't using any credit. Your score may rise 10 points or more if you charge a tank of gas every month and pay it off every month over not using your card at all. Sad but true.

So, let's say you are planning on getting a new car in a few months and only have a Lowes credit card. Yu odon't like credit cards. They are evil (I believe they are). So, Lowes offers 0% for 6 months if you buy a major appliance. You've been looking at a new washer and dryer for a while and decide to use the Lowes card for the free money. You also want all the cash you can for the new truck purchase in December when you get your bonus. Lowes will be paid off with your tax refund in January so all is great.

At Thanksgiving you check your credit Karma and see your score is 690. The last time you looked it was 716. You are floored and mad because you didn't miss any payments. What happened? He won't get that 2.9% for 72 he knows will be offered. He's confused and begins to do Google research.

Well, it turns out that his Lowe's card limit is $1500 and he put $1100 on it for the new washer and dryer. That's 75% credit card usage as his report reads it. Bang, his score drops. Yet someone with 8 credit cards buys the same units at Lowes and because his total limits is $15,000, his score doesn't even move more than a point or 2. So, you see what happened and you pay off Lowes in time for the big clearance sale and all is well.

So, let's say that you hate credit cards and your entire credit report has your mortgage (10 years and perfect) a paid off car loan (paid off 2 years ago) and your Lowes card (open for 5 years now). Your score is in the low 700s because you don't have a lot of credit depth. Credit depth shows you have the ability to pay off your credit cards, auto loans and mortgages on time. Most people have a mortgage or 2 or 3 (you kept moving and selling/closing the mortgage and getting a new mortgage) multiple car loans paid off. Several credit cards that you closed over the years and opened others as offers came around, etc. These people have credit depth and a lot of closed accounts that were paid great. Your credit report loves closed and paid accounts. It shows you handle your credit perfectly. Your score shows it. Having little or no credit is as problematic as having a few late payments on your report.

By paying cash for everything, you have not proved you can handle credit and regular payments over time. Stupid? Yes. But this is how your credit score works. Remember, it's a credit score and if you don't use credit, they have trouble scoring it.

So I suppose the way to look at it is that just like the NADA creates and uses "the book" pricing structure as an aid in running their businesses ( buy low sell high) profitably, the lenders use the FICO scoring system to make reasonably sure they can make good easy money off of you as a customer.

Neither is about you as a person at all, really. You, as a customer are being assessed as to whether you are ripe for potential profit. And oddly enough the psychology of it makes us want to achieve a Good Score and the whole credit industry feeds that impulse because they know a good credit rating is useless unless you "purchase" a credit product. It's sorta like cattle capable stamping USDA Prime on themselves.

Alfred said:

Neither is about you as a person at all, really.

Click to expand...

So correct. We are nothing but numbers. We are our social security number. We are our FICO score. At work we are our employee number. On here we are our IP Address (numbers).
We are bank account numbers. We are credit card numbers. We are our street number and ZIP code. We have our personal cell phone numbers.
We are nothing but computer code and we are evaluated by what our numbers say we are. Our houses are a latitude and longitude number as are our GPS coordinates. We are nameless, faceless and only worth what our numbers say we're worth. Big Brother has arrived and has taken over.

The Business Office: Summary

As we have seen, you can be as diligent as anybody when it comes to getting your car or truck at the best price. If you do your homework, you can save a bit of money, sometimes a lot.

In the Finance Office, if you don't walk in with a specific plan, you can lose thousands (with a "s" at the end). Lose may be the wrong word but it will cost you thousands and you had no idea that it was happening. The best advice I can give is to know what to expect when you walk in. Be prepared. Know the year and mileage of the car you are buying and the interest rate for it. If you leave it up to the Finance guy, he'll gladly help you. It is his job, after all, to help you! If you finance $20,000 and he gets 1 point, you just handed him $750. Just like that.

If you know what car or truck you want to buy, new or used, go to your local bank or credit union and get approved there. You can even have the payment taken directly from your account, if you choose. Many times they offer a quarter point discount for doing just that, The only time this may not work is if your credit is a little rough or if you have a credit score under 680. Banks and credit unions hate risk. They are very conservative. Also, if you are quite a bit upside down on your trade in, they may not want to finance the negative equity. If this is you, then the dealer is the best place to take care of the negative equity.... at a cost, of course. All-in-all, do your research and homework before walking into any dealer. Know more than they do about your own needs and options. After all, you are the customer. They are there to assist you in your purchase. If you give them the reins, they will take you for a ride!