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The trouble with running credit reports
Every time you apply for credit, a so-called hard inquiry is placed on your credit report. Having too many hard inquiries could indicate to lenders that you’re trying to overspend. Consumers should avoid having businesses run their credit reports unnecessarily because it will lower their credit rating slightly, consumer advice experts say. According to the Experian website: “Lenders and credit scoring models consider how many hard inquiries you have on your credit reports because applications for new credit increase the risk a borrower poses. One or two hard inquiries accrued during the normal course of applying for loans or credit cards can have an almost negligible effect on your credit. Lots of recent hard inquiries on your credit report, however, could elevate the level of risk you pose as a borrower and have a more noticeable impact on credit scores.”
Car salespeople are eager to run a customer’s credit report and often say it is for the buyer’s convenience, and will speed up the car buying process, says Chris Kukla, senior vice president of the Center for Responsible Lending. “But they really want to know if they can easily finance you,” he says. “The result of the credit report has an impact on what the buyer pays for the car, and whether they get a hard sell for additional products in the finance and insurance office.”
Marv Eleazer, finance director at Langdale Ford in Valdosta, Georgia, agrees. “This is a ruse and designed to get access to the customer’s credit report in order to qualify a customer to various finance sources the dealer uses,” he says.
Buy here, pay here car dealers often demand a credit report early in the car buying process, Kukla says. Often, the car’s price isn’t even posted on the windshield. After seeing the result of the credit report, the dealer can adjust the price to maximize his profit, Kukla says.
Kukla says many car buyers with midtier credit assume they can only get financed at the dealership, and as a consequence, they arrive on the car lot with no idea of their creditworthiness. Instead, he tells car shoppers to look for a loan from a bank, credit union or other outside lender first. With preapproved financing in hand, they are in a stronger position to negotiate at the dealership.
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