Credit plays a major role in financing the purchase of a car. But anyone who is confused or intimidated by the topic can be forgiven.
The U.S. credit system can be complicated and may be difficult to understand, especially for those who have bad credit or no credit. There are many myths surrounding credit scores that lead to misconceptions about how credit reporting works and the role it plays in buying a vehicle. In order to help you better understand this important part of the car buying process, we’ve reviewed numerous sources, including the Consumer Financial Protection Bureau to Experian and other recognized credit sources to better help you understand the real facts behind some of the most common credit score myths.
Understanding the system
Before we get to the myths, you should probably understand the basics of the credit system. Personal credit is based on the financial transactions that surround your borrowing. When you obtain a credit card or take out a loan from a financial institution, that information is transmitted to credit bureaus, which track the activity on those accounts under your Social Security number.
There are three primary credit bureaus, each of which act independently: Equifax, Experian and TransUnion. Each of the bureaus maintains a credit score according to its own formula, considering how much you have borrowed, how much you have spent, your payment history and other factors. Creditors can check your information with the bureau when you apply for a loan.
But the system is not perfect. The bureaus make mistakes, and it is up to you to the consumer—you—to ensure that the information on credit reports is accurate. That can be a chore. The bureaus are required to provide a report free of charge, but policing your credit means obtaining those reports and disputing incorrect information. It takes time, and an entire industry of digital services and consultants has emerged to help people monitor and improve their credit.
Common Credit Score Myths
Of course, playing an active role in your credit is time well spent. Most financial experts say the best way to increase credit scores and maintain good credit is to manage the amount of borrowing you do and pay your bills on time. But monitoring credit reports and maintaining accuracy is important, too.
For those who want to manage their credit scores, knowing the difference between facts and popular myths is important. Here are some of the most common credit score myths that we can debunk:
False. Subprime financing is an option specifically available to credit-challenged consumers regardless of their credit history. Subprime borrowers don’t always need a co-signer. For example, a car dealer in the Credit Acceptance network of dealers may not require a co-signer. Click here to be connected to a dealer on the Credit Acceptance network.
False. According to Experian, a credit inquiry may affect your credit score if the inquiry is related to a credit application that you’ve submitted. However, simply viewing your credit report on your own won’t affect your score.
False. There are multiple credit scoring models that finance companies and credit lenders use in different situations. The three most popular credit bureaus are Equifax, Experian and TransUnion, but there are other reporting agencies.
False. Married couples may have many joint accounts and may file taxes jointly, but your credit reports are individual and separate. Regardless of whether you’re married or single, you have your own personal credit report that is linked to your Social Security number.
False. While you may think “debt is debt,” maxing out your credit card is not viewed the same way as auto financing or a mortgage on a home. Arranging your auto financing and then making your payments on time can help you build credit. You can even inquire about your ability to get financing before you go shopping for a car. If you’d like to see how that works, visit the Credit Acceptance website to get prequalified with Credit Acceptance. Knowing what you may qualify for before you go shopping will give you a great deal of information about what kind of car you may be able to get financing for and allow you to negotiate with confidence when you visit a dealership.
