Who pays for a new car in cash these days? Hardly anyone. In an age when securing a finance package for your customer is almost always a part of closing the sale, the value of understanding each part of the consumer finance process can't be underestimated.
The credit report is one of the core tools used in the course of qualifying a consumer for a loan. By honing your understanding of the key elements that make up a credit report, you can use that knowledge to:
• Keep deals from falling through unnecessarily by identifying potential errors or out-of-date information on the report.
• Provide added service by helping customers understand their credit report and offering helpful hints.
• Gain the respect of your key financing sources by demonstrating your understanding of the process.
The data in a credit report gives credit grantors the critical information they need to make prudent lending decisions. Most reports are formatted into several key sections to facilitate a quick review of the customer's credit history:
Think of the header as the section that identifies all the key players involved in the transaction. Here you'll find the name of the company that requested the report - in this case your dealership. You'll also see the applicant's and co-applicant's names, their current and previous addresses and their social security numbers. The information in this section will appear as entered when you requested the report.
Below the applicant information, warnings -- if there are any -- may appear. Two people with similar names or social security numbers living at the same address may trigger a warning. A warning message may also tell you that you need to review important data in the body of the report, such as fraud detection information.
The summary is one of the most powerful parts of the credit report because it allows for at-a-glance evaluation. This section clearly lays out all the applicant's outstanding debts and any derogatory information. One quick look will tell you if the customer has a lot of missed payments or possible bankruptcies on his or her record. The summary section will also give you the basic story behind the resulting score in the credit scoring section.
Bureau Score Information
Ahh yes, the credit score -- those three little yet powerful numbers. They often answer the question, "Does my customer qualify?" But savvy F&I professionals take the time to dig a little deeper. The information in a consumer's credit file is used to calculate the credit score. So, if a customer has a score that's on the brink of qualifying for a particular finance package, find out what's affecting the score.
In the scoring information section, along with the actual credit score, you'll find "factor codes," or numbers that indicate the factors influencing the score. If a customer has late payments or collections on his or her credit report, you may be able to uncover reasons behind the delinquencies that will impact your lenders' financing decisions. For example, was your customer laid off from work or on disability during this period? Discovering the mitigating circumstances behind a marginal credit score can give you the extra edge you need to close the deal.
At first glance, a tradeline, with its rows of numbers and puzzling abbreviations, may appear like a secret code. But, once you understand the basics, you can unlock the valuable information each tradeline holds.
Tradelines contain detailed information about every account or debt in a consumer's credit file. Each tradeline represents one account or debt. Typically, derogatory tradelines such as accounts that have been submitted to collection are listed separately from non-derogatory items. However, both are formatted similarly and provide the same basic account history details.
Each tradeline provides the name of the creditor or lender and the account number. Additionally, the date the account was opened and the account's starting balance, average monthly payment and current balance are listed. The tradeline also identifies the method of payment, which indicates if the account is a mortgage, revolving or installment account. The method of payment will also reveal the account's current status.
The history line usually appears as a row of numbers. Each number in the row represents a rating code in sequential months of payment history (see "Universal Rating Code Key" sidebar). The numbers rate how the account was paid for that reported month. For example, a sequence of five numbers such as "11121" would indicate that there were five months of payment history reported and that a payment was made 30 days late on the fourth month.
For an even more in-depth breakdown of each element of a tradeline, visit http://www.credco.com/tradelinekey.pdf.
In addition to providing detailed tradelines on derogatory accounts, the derogatory information section will indicate if there are any public records, such as a tax lien or bankruptcy, present on the consumer's file. It will list the type of public record, the date filed with the court, the status of the judgment and where the judgment was filed.
While the additional information section is a sort of catchall for miscellaneous items in the consumer's credit file, it also contains certain vital data. You may find details on any warnings indicated in the header, recent credit inquiries and fraud verification information. You'll also find any consumer statements, such as notes a consumer may have submitted explaining a delinquency. If there are any issues with processing the report, special messages regarding the state of the file will appear in this section.
Although these six sections are found on most credit reports, keep in mind that each national credit bureau (Equifax, Experian and TransUnion) has its own format and each uses its own classifications and codes for presenting data.
If your dealership works with a variety of lending sources and has to access all three bureaus, consider using a credit-reporting provider that offers three-bureau access. For example, First American CREDCO provides credit reports from any of the three bureaus in a standardized format.
Kimberly Price is a researcher for First American CREDCO, which provides credit information to the mortgage, consumer finance and automotive industries. To reach a representative specializing in credit information solutions, contact Jim Trevithick of First American CREDCO at (866) 231-3191 or [email protected]
When the Report Has an Error: The Consumer Dispute Process
So you've carefully reviewed the credit report, and as you're explaining to the disappointed customer why her score falls short of qualifying, the customer notices something odd on her report. There seems to be an account that was mistakenly reported as delinquent. Correcting this delinquency might boost the score just enough. So what do you do?
All consumers have the right to challenge potential errors or incomplete information in their credit files. This right is detailed in Section 611 of the Fair Credit Reporting Act, "Procedure in case of disputed accuracy."
Here are a few points customers should remember when disputing an item on their reports:
For more detailed information about the consumer dispute process, visit: www.ftc.gov/os/statutes/fcra.htm.
Universal Rating Code Key
0 - Too new to rate
1 - Current
2 - 30 days late
3 - 60 days late
4 - 90 days late
5 - 120 days late
6 - 150 days late
7 - Wage earner plan or bankruptcy
8 - Repossession or foreclosure
9 - Collection of charge-off
U - Unrated