What Happens When a Car Dealership Runs a Credit Check?
Opting into dealer-arranged financing means potentially relinquishing control over who views your financial information.
Adobe Stock
QuickTakes:
For a simplified car-buying experience, many drivers turn to dealer-arranged financing. Rather than seeking out loans from financial institutions yourself, you can let your dealership run a check of your credit and find you an offer. However, this process may come with its own set of trade-offs.
If you want to minimize additional financing steps, dealer-arranged financing can be convenient. But it may be less ideal for customers who are worried about their privacy and the potential for unwanted "hard" inquiries.
What Happens When a Car Dealership Runs Your Credit?
If you decide to let the car dealership handle your financing, then you are allowing them to run a hard credit check that they then send to their lender, or lenders, of choice. While letting dealerships handle the financial aspect of your purchase may be convenient, it also means a lack of control over which lenders are available to you and who has access to your financial information.
Unless a dealership provides their own in-house financing, it's likely they will pass along your financing contract to the bank, credit union, or third-party lender of their choice. Although dealerships may have a preferred lender, some dealerships choose to "shotgun" your credit information to multiple lenders, which is a tactic dealers use to make lenders compete to give you the best rate.
Many dealers contact around five lenders and then choose a single loan offer to present to you. If this is a privacy concern for you, be sure to check with your dealership to understand their process before submitting an application.
How Car Dealers Check Your Credit
Car dealerships tend to have their own individual systems to complete, file, and organize credit applications. These include a variety of dealer-specific tools, such as RouteOne and Dealertrack.
These tools help dealerships process and send your credit report to lenders, and they might store your financial information — even after your application is approved. For example, RouteOne holds onto this data for up to 60 days so dealers can go back and review as necessary.
Information You Typically Provide to Dealers
When applying for an auto loan pre-approval through a car dealership, the information and documentation you provide may vary depending on the dealership's unique requirements. However, there are a few commonly requested documents you may need, such as:
- Social Security number
- Driver's license or alternate identification
- Employment status
- Income information
After you provide this information, the dealership typically requests a hard inquiry into your credit report. If you want to avoid providing this information to a dealer, consider securing financing from your preferred lender beforehand.
Can Car Dealerships Run Your Credit Without Permission?
Under the Fair Credit Reporting Act, lenders are allowed to request soft credit inquiries, such as those used for pre-approval letters or other pre-screened offers, without telling you. However, hard inquiries can impact your credit score and typically require written consent.
If you notice a hard inquiry has been made to your credit without your permission by a car dealership, contact them to see whether this was an accident. Hard inquiries can temporarily hurt your credit score, so any unwanted checks should be handled quickly. You may also place a freeze on your credit to protect yourself from the possibility of unwanted credit inquiries or dispute them with credit bureaus.
