Credit Application – Cornerstone of Making Deals
With 88% of Americans financing their large purchases, credit applications are now taking Center Stage. Since the credit score alone does not always determine credit worthiness, the quality and accuracy of a credit application is paramount to making the deal.
The Need to Complete
All too often lenders must turn down applications due to incomplete credit information. The old practice of simply obtaining a 5-line customer statement must be eliminated. In the Information Age we must remember that a credit report is not a complete credit history. Since many loans now approach 72 months and more, the credit bureau’s score will reflect only the most recent repayment history.
Conducting and documenting a proper credit interview will also help your efforts to secure financing on credit-challenged deals. Complete credit applications show lenders that dealership personnel have exercised due diligence to obtain accurate information the first time around.
Sharing the Wealth
Who should take the credit application? Typically, a sales consultant or F&I Manager obtains credit information. In larger dealerships, the sales consultant fills in the credit application during the deal negotiation. When the sales manager guides the dealer’s sales process, the sales manager structures the deal, runs the credit bureau with the customer’s permission, and quotes payments that are always contingent on the lender’s final approval.
While it is general practice for the sales consultant to obtain initial credit application information, the F&I manager should review the information with the customer and complete the credit interview.
Customers appreciate discreet, professional attitudes during the interview process. People do not enjoy being placed in any situation where they lose face. The professional way to enter a credit interview is by saying: “I am the dealership’s business manager and will be working with the lenders to secure your financing. Do I have your permission to discuss your past credit history?” A customer’s current credit problems do not presuppose future credit problems. Your attention to their dignity will generate a satisfied and loyal customer.
Line Items
The individual who conducts the initial credit interview must record accurate, complete customer information including proof of income, proof of residency and complete bank and personal references. With larger loans, the interviewer should also verify customer assets, rental property income, 401-K and savings account balances.
Lenders will require documentation that clarifies customer situations like individuals with a credit score of less than 700, those that are self-employed or who hold senior management positions in a company with high revolving debt due to travel expenses that are on a company reimbursement schedule.
Regulations Rule
The federal regulations that govern credit applications are Regulation B and the ECOA (Equal Credit Opportunity Act). For the rare occasions when the dealership has obtained a credit application and the deal is not secured, Regulation B stipulates that you must retain the credit application from the Date of Action Notice for 25 months for an individual and 12 months for a business. If you would like to review these regulations, we’d be glad to send you a copy.
Dealer Marketing Magazine, February 2003, p. 16.