subject: Car Buying Intelligence - Know Your Credit [print this page] Before you even set one foot onto a car dealership check and know what shape your credit is in. Even if you know it is in good shape... here's a flash for you - credit reporting companies make mistakes... and many of them. So, be smart... begin your car buying process the correct way... know your credit score.
You should begin the process of self evaluating your credit well in advance of doing your car shopping.
Why? Because if you find incorrect information or reporting on your credit report it will take some time in order to get it corrected or removed... and if you don't you may pay for the mis-information quite handily in the form of paying a higher interest rate than you would otherwise have to.
For instance if you were to finance $20,000 for 5 years at 0% interest rate (obviously you'd pay no interest) your monthly payment would be $333.33. If however, because of credit issues (either correctly reported or not) you signed up at 7.9% your payments would be $71.00 dollars per month more for a painful $4,274.28 more in interest payments alone.
And just to pile on a bit more... this means that your loan payoff will always be higher so if you get the urge to trade cars two, three, or four years into your loan... you're going to be much further upside down!
There are three credit reporting agencies - Equifax - Experian - Trans Union - and it's best to get a report from all three. Also, if you are married you'll want to get your spouse's as well.
First check to determine what your FICO score is. FICO scores can range from about 300-900 with the higher the number being the stronger credit score. Lenders have differing criteria in how they evaluate and grade FICO scores so the break lines between poor - average - good - excellent can vary somewhat but generally the best auto financing rates are granted to those with a score of 700 or better.
Basically your credit score is based on five determinants:
payment history - unpaid debt - how long you've had established credit - how much credit you've acquired or applied for lately - the types of credit you're carrying.
The Federal Trade Commission (FTC) has a good website for understanding what your rights are under The Fair Credit Reporting (ftc.gov/bcp/conline/edcams/credit/) add the www to the front.
Work to update outdated information that may be a part of your credit report and by all means begin the process of correcting any mis-information or incorrect payment history. Once you have corrected the mistake, be sure to check your credit report again in about 60 days to see how much of your credit report has changed and if your score has improved.
Working to get your credit report in order may take some time and diligence, but it's like paying yourself. Remember, the difference of a not so many point swing in your credit score can get you that 7.9 interest rate instead of that 0% interest rate.
It's your money... don't waste what you can control.
