Before I founded ProMax 23 years ago, I worked in retail auto sales for more than a dozen years. One thing I learned while desking deals, and something I’m sure you have noticed as well, is that all prospects have score variances from one credit bureau to another. Often the difference isn’t that dramatic — one score is 10 points higher, another is 20 points lower. Many of these variances don’t affect the prospect’s tier.
Sometimes, however, the difference in scores is dramatic — very dramatic. In some cases, scores can vary by 50 to 100 points, or even more. Needless to say, a difference of 100 points on a prospect’s credit score can have a huge effect on the deal you’re putting together.
It’s one thing to observe a phenomenon and guess about its effects, but I wanted to know just how big this effect was, and how it was affecting actual deals. Were dealers who only pull one bureau missing big opportunities and leaving money on the table? I looked around for answers, but I couldn’t find any compelling studies on the subject. That’s how the Multi-Bureau Study came about.
The Multi-Bureau Study
From the very beginning of ProMax, we have been a certified reseller of all three automotive credit bureaus and, a result of this synergy of credit, lender submittals and desking, we have the ability to do amazing analytics.
So, for six months in 2017, we conducted a study of more than 700 new and used car dealers across the United States in what came to be known as the Multi-Bureau Study. This study analyzed more than 650,000 showroom visitors with more than 1 million credit bureau reports pulled and more than 180,000 vehicle sales.
I had a hunch what the study would show, but even I was surprised by how conclusive the results were. The analysis of the data set led to an unmistakable conclusion: Pulling multiple credit reports per customer increases both the number of sales and your back-end profits. Pulling two bureaus was better than pulling one, and pulling all three was better than pulling just two.
How Much Variance is There Between CB Scores?
As it turns out, quite a bit! More than 55 percent of applicants with two credit bureaus pulled have risk scores that vary by more than 20 points and 75 percent of applicants with all three bureaus pulled have risk scores that vary by 20 points or more. That means more than three out of every four prospects has a variance greater than 20 points among bureaus.
Not only do a large majority of prospects have variances in their scores between the three bureaus, but the study discovered that this was more pronounced among prospects with lower scores. In other words, the lower the initial score was, the more likely a second or third bureau pulled would lift that prospect to a higher tier.
How Does This Affect Sales and Closing Ratio?
This analysis showed that the average closing ratio for customers with a high score of 639 or below was 18 percent, and the average closing ratio for customers with a high score of 640 or above was 61 percent. For every 500 prospects, by pulling all three bureaus, you would get an additional 32 people (500 x 6.5 percent) into the 61 percent closing pool rather than the 18 percent pool.
The minimal expense involved in pulling all three bureaus (about $3,500) resulted in 14 extra sales and $39,144 gross profit per 500 prospects. Additionally, reserve and back-end profits went up dramatically when pulling all three bureaus on every customer.
The wide sample size of the Multi-Bureau Study enabled us to drill down to some very enlightening individual case studies. One such example was two dealerships in northern Ohio: one dealer who pulled a single bureau on every prospect and another dealer about 100 miles away that pulled all three bureaus on practically every prospect. We estimate that the first dealer lost up to 182 sales over the six-month period, while the second dealer gained 139 sales. That’s an enormous split.
How Can I Take Advantage of This Information?
Two things are necessary here: You need to have knowledge of your lenders and you need a consistent process. You need to find out which of your current lenders will look at more than the primary bureau. Most will look at a secondary and many will look at all three — but only if asked. Many times, it’s not published that they will look at more than one bureau for an approval or a tier bump, but your rep will tell you if you inquire. Cultivating good relationships with your lender is key.
I am a big believer that a dealer needs aggressive lenders for every credit tier that will do everything they can to put a deal together, including looking at all three bureaus when called for. However, many times there are lenders a dealer is not using that are buying aggressively in their state that they are not using and need to. It’s critical for your success to research and sign up these other lenders.
Process, as you know, is essential for any dealership. A consistent procedure to pull all three bureaus at the right time in the sales process before desking the deal is critical to maximizing the benefits of score variance. Like all processes, it starts at the top and doesn’t happen overnight. It will come as the result of continued emphasis on pulling three bureaus.
If you do commit to this process, however, you will see increased sales and gross profit over time. The Multi-Bureau Study proves it.