Unless you are paying for the car in cash, chances are that a dealer will run your credit to see if you qualify for an auto loan. They will want to make sure you are able to pay back the loan. The credit report shows the length of time you have been borrowing money, your payment history, and how much you owe. It also includes any late payments, bankruptcy, foreclosures or repossessions. The most important part of the credit report for a car dealership is your credit score. The higher the score, the better.
Most car dealers use a FICO (Fair Isaac Corporation) Auto Credit score, which is specifically designed for auto financing applications and takes into account additional risks that may affect your ability to repay a loan. These scores range from 250 to 900. Other information that can be seen on the credit report include any outstanding loans or mortgages you have, a list of people who will vouch for your character, and bank account statements.
Car dealers are allowed to run a consumer's credit as long as they have a legitimate business purpose, such as an application for credit or a request for a copy of the consumer's report. However, some car dealers have been known to run a consumer's credit without their knowledge or consent, in order to determine whether the consumer has the financial capacity to purchase a vehicle.
This practice is considered a violation of the Fair Credit Reporting Act and is illegal. When a car dealer runs your credit, it will cause a hard inquiry on your credit report, which can drop your credit score by 5-10 points for about a year.