Fixing your credit report—will it help?
The auto finance companies use several ways of determining who will get approved for a car loan and who won’t, what the interest rate will be, how long of a loan term, and how much down payment is required. Some car banks use one of the three credit reporting companies: TRW, Transunion or Equifax. Every car company uses one of these three, but some are now surveying all three and averaging the total score to create a median average. This may all sound fair, but in truth, if there are mistakes on your credit report, trouble is coming. Negative information placed on your credit drives down the score, which is often duplicated from one charge-off to another, adding insult to injury.
Since the FICO (Fair Issac Company) that has controlled the scoring system for so long, and is a private business, they do not share with the consumer or the government how the score is mathematically derived. Factors are the common term, but the specific value or weight of one factor over another, is known only to the reporting company, not the consumer. You may obtain a copy of your credit report once every twelve months for free; however, this will only show the status of your accounts. It will not show a credit score. A “middle” or median score from a mortgage-run report will not provide adequate risk-value or AUTO score rating for obtaining a car loan.
Medical charges caused by insurance billing problems, pre-foreclosure, repossession or bankruptcy by an ex-spouse, rent, cable and electric bills charged by landlords, student loans on deferment—all these items can backfire on the consumer, with little recourse but painful hours spent chasing the culprits that made the erroneous claim. I’m only speaking to the errors, mistakes, or failed follow-up, not those delinquents who have earned every black mark on their bureau.
Let’s go back to the original issue—how does someone get a decent auto loan interest rate when the car banks are using bad information to make a decision? Some car banks are now contacting previous auto loan finance companies to get the real payment history story, where previously it took sixty days before a car bank would report late. “Internal” history reports are revealing true account activity, much to the detriment of car loan shoppers. This information, correct or not, is hard to dispute, so having a high auto credit score from the start may be your only salvation. Using a service to keep your credit report tarnish-free may be your only recourse.
Reviewing the credit report with the dealer can often reveal what errors are there and allow you to provide documentation to disprove it. This “proof”—receipts, letters of reinstatement and satisfaction—can often help a lender reduce the rate, but sometimes, car bank declines are automatic, score-driven computer-generated results with no wiggle room. In this case, one must gather all the evidence of erroneous claims and prepare for a long battle of wits and letters with the three reporting agencies.
Defaulted student loans, back child support, and federal or state tax liens are the hardest to disparaging marks to fix. Documents galore and letters from the claimant must be provided in triplicate before one of the bureaus will consider a correction. Oh, by the way, even with the Fair Credit Reporting Act allegedly allowing you to demand satisfaction where errors are proven, it could take months to see the score adjust accordingly.
Since credit reporting agencies get paid to provide information, not correct it, and it costs time and money to actually provide the due diligence to check all the alleged “bad” information, expect the reporting companies to drag their feet in responding to your complaints. There are hundreds of lawyers and companies pounding the credit reporting companies with thousands of demand letters every day. Get in line with your fifteen letters, twenty calls, and fifty voice messages they aren’t returning anytime soon.
