Auto Financing Credit Is More Than a FICO Score

Developed by Fair Isaac & Co., a FICO credit score is a method of determining the likelihood that borrowers will pay back their loans.

Such predictive information is particularly important for big-ticket loans, such as auto financing that can involve large amounts of money and lengthy payback durations.

Fair, Isaac began its pioneering work with credit scoring in the late 1950s. Since then, lenders have widely accepted FICO scores as reliable means of credit evaluation.

A FICO score, which can range from 400 to more than 700 points for a sterling credit rating, is a snapshot of a consumer's credit worthiness.

But auto loan experts say it often is important to get beyond the scores, which attempt to condense a borrower's credit history into a single number.

“Credit is not just a FICO score,” says Matthew Briggs, president and CEO of 700Credit, a provider of credit reporting.

It is important for dealers and others to know how to read a credit report, he says.

Credit scores use mathematical tables that assign points for different pieces of information that best predict future credit performance.

Developing these scoring models involves studying how thousands, even millions, of people have used credit. Score-model developers find predictive factors in the data.

Determining factors include:

• Late payments.

• The amount of time credit has been established.

• The amount of credit used versus the amount of credit available.

• Length of time at present residence.

• Employment history.

• Negative credit information such as bankruptcies, charge-offs and collections.

Briggs says it is important to look at:

• Public records.

• Additional assets.

• Debt levels.

• Revolving lines of credit.

He says most auto dealers want to improve the efficiency of obtaining vehicle financing for their customers, and get them the best deals.

Electronic loan applications, e-contracting and the like are intended to streamline the process.

“We're trying to get electronic credit approvals to dealers faster, under the right circumstances,” says Tom O'Connor, a sales support manager for Ford Motor Credit Co.

Dealers who conscientiously obtain full and accurate credit information enhance their reputations with lenders, “because they are sending over good paper,” says Briggs.