Those who do not learn from history are doomed to repeat it. Okay, so before we start sounding like a cheap book on proverbs and clichés, it's worth noting the importance of that statement when it comes to your credit.

Now that a foundation of understanding has been laid down, let's dive right into the nitty-gritty details of your credit. Here, we will cover the actual criteria that the dealerships take into consideration when you apply to finance or lease a vehicle. This is what is known as your credit history and it contains two important elements: Credit Report and Credit Score.

Credit Report

The creditor's main purpose for reviewing your credit report is to help decide if they want to extend credit to you. Within this report, you can expect to find:

Personal Information

Your name, current and previous addresses, Social Security number, date of birth, telephone number and current and previous employers.

Credit Information

Your creditors and account details such as date opened, account number, amount borrowed, payment terms, credit limits, account balances and payment history.

Public Records

Tax liens, bankruptcies and court awarded judgments.

Inquiries

A listing of all parties that have requested a copy of your credit report. This includes formal inquiries (a list of all creditors who have accessed your credit report), promotional inquiries (this is where all those pre-approved offers come from) and account management inquiries by your current creditors (they have the right to review your credit report periodically). Promotional and account management inquiries are not shown to other creditors and do not impact your credit score.

How is Your Credit Report Generated?

Each of the three major credit-reporting agencies (or credit bureaus) keeps a running tab on your credit history, based on the information it receives from creditors and public records, among other sources. When you apply for credit, creditors will request a copy of your report from one or more of these bureaus.

The contents of your credit report are used to compute your Credit Score. Keep in mind that the more you know, the better (and faster) your visit at the dealership will be.

CREDIT SCORE

Your credit score can be both your best friend or a thorn in your side. Your goal is to maintain a good credit score, as these scores are the additional considerations creditors use when they're deciding whether or not to extend a line of credit to you.

The credit scores generated by the credit bureaus are often referred to as "FICO® scores," even though each of the three major credit bureaus has its own name for these scores. FICO stands for Fair Isaac and Company, the company that produces the software used by many credit bureaus to calculate your credit score. These scores range from 300 to 850 - the higher, the better.

Over the years, this three-digit scoring system emerged as a way to compare how the information on your credit report compares with each bureau's credit history on hundreds of thousands of other consumers. In a nutshell, the credit score generated informs creditors how likely you are to repay your debt.

Because your credit score is such an important aspect of obtaining credit, multiple factors are used to compute your credit score:

Past payment history	Have you paid your credit accounts on time?
Amounts owed	How much credit do you have available vs. how much you owe?
Length of credit history	How long have you had your credit accounts?
New credit and credit inquiries	Have you recently taken on more debt?
Types of credit established	May include credit cards, home mortgages and car loans

 

Until now, we've painted a picture of your credit score being one number that is used to determine whether or not you're worthy of receiving credit. The truth is, there is no one score. Every bureau has its own score.

Why?

Each credit bureau uses their own methods of calculating your credit score based on all of the criteria listed above. And yes, each credit bureau has multiple ways of calculating the same credit score.

Additionally, it's quite probable that at any given time, each credit bureau will report a different credit score for you. They all attempt to remain as current as possible, but the resulting score is only as accurate as the information that they have available on you can provide. This is why you should check in on your credit scores from time-to-time.

A law passed in December 2004 allows consumers to obtain one free report from each of the three credit bureaus every 12 months. For more information, check out the box below.

 

FREE CREDIT REPORT AnnualCreditReport.com issues one credit report free per year.

 

Creditors use the scores they obtain from the bureaus in their own formulas to determine a credit score of their own. While we can't identify the factors used by every creditor in identifying your credit score, it's safe to assume that these formulas incorporate your credit bureau score as it fluctuates from time to time. Fluctuations can be used as a guide to understanding your financial behavior (how likely you are to repay a debt).

You're Not Alone

It's a tough job trying to keep track of everyone's credit. While the credit bureaus try to stay on top of your credit history, some times things are missed. Therefore, your score from any given credit bureau is a reflection of the most recent information they have on you, so it's possible for your credit score to change by the day. Here's where you come in.

To always remain in good credit standing, you must take a proactive approach to guard your credit. Right now this may all sound like more trouble than it's worth, but we wouldn't steer you the wrong way (getting you where you want to go is what we do, after all).

Reprinted with permission from Toyota Financial Services (ToyotaFinancial.com ).

 

FICO SCORES

Creditors use FICO scores to make their decisions. What is it? FICO scores are your credit rating. They range from 300-850, higher is better. Higher scores mean lower interest rates. The scores are calculated based on your rating in five general categories: Payment history, amount owed, length of credit history, new credit and types of credit used. The median FICO score in the U.S. is 723.

Source: myFICO.com