Understanding Why Car Dealership Run Your Credit and How It Affects You

When you visit a car dealership with the intention of purchasing or leasing a vehicle, it is common for them to run your credit. This article aims to demystify the reasons behind this practice and clarify the impact it has on your credit score.

Why Dealerships Run Your Credit

When you visit a car dealership to explore your options for financing, it is likely that your credit will be checked by the dealership. This is typically done to determine your creditworthiness and to find the best finance package that suits your budget and needs. There are several reasons why a dealership might run your credit:

To find the best financing options that match your credit score. To determine the lowest interest rate and potential monthly payments. To ensure they can make a profit on the financing deal. Sometimes, dealerships might use this information to balance potential losses elsewhere in the deal.

It is important to understand that the dealership must have a valid reason for running your credit. If they run it merely for the sake of checking, you should feel free to decline.

What Constitutes a Valid Reason?

To justify running your credit, the dealership must have a reasonable expectation that you will purchase a car or lease from them. If you are not sure about the purchase or interest rate, you have the right to question the need for the credit check. You can also refuse the credit check and ask for documentation of the dealership's reason for requesting it.

If you do consent to a credit check, be sure to sign the authorization form presented by the dealer. Always be aware of the terms and conditions of the credit agreement, and do not sign anything that you do not fully understand or agree with.

The Impact of Multiple Credit Inquiries

Typically, each time your credit is checked, it can have an impact on your credit score. However, credit reporting agencies recognize the necessity of shopping around for the best financing deal, and they regard multiple inquiries within a short period as a single inquiry. This means that these inquiries will not significantly harm your credit score.

It is crucial to understand the distinction between a 'hard inquiry' and a 'soft inquiry.' A hard inquiry occurs when you apply for financing and a formal application is submitted. This can have a more significant impact on your credit score. On the other hand, a soft inquiry, such as when you shop for financing quotes, has no impact on your credit score.

When Does the Credit Check Happen?

A comprehensive credit check usually takes place when you finally decide to proceed with the purchase or lease. If you are not interested in purchasing a car or leasing one and simply want to shop around, a soft inquiry is performed, and it does not affect your credit score.

If you change your mind after a hard inquiry and decide to resubmit a new application, the credit check will be run again. This will count as a new inquiry, and it could negatively impact your credit score for a period. It is advisable not to apply for financing multiple times unless it is absolutely necessary and you are ready to proceed with the purchase or lease.

What to Do If You Feel Pushed

If you feel that the dealership is being overly pushy or aggressive in their attempts to run your credit, you have the right to refuse. If they persist, you should consider walking away and explaining why. You should demand that they provide clear, honest, and reasonable reasons for the need to run your credit.

Dealerships are ethically bound to respect your privacy and not conduct credit checks without a valid reason. Walking away can sometimes prompt the dealership to reassess their approach and present a more friendly and transparent process.

In conclusion, while car dealerships may run your credit to secure the best deal for both you and the dealership, it is important to be aware of the reasons behind it and to protect your credit score. Always ensure that you understand the nature of the credit inquiry and have a valid reason for proceeding before consenting to a credit check.