Good Money – How Not to Get Screwed When Buying a Used Car

There are three mysterious “How’s” that plague each of us as we attain adulthood:

  • How often do I really need to get a physical?
  • How long can I pretend I don’t have a bald spot? and
  • How do I buy a car without getting completely screwed by the dealer?

We’re a personal finance series so don’t expect answers to the first two questions. Well okay: twice in your twenties, three times in your thirties and so on until your sixties. At that point go every year. And as long as you want but you’re only fooling yourself.

As for the third question, we actually went to the source and asked a dealer to demystify the process. He gave us six rules for getting the best deal possible. Here are the first three:

  • Get pre-approval from your bank.
    This ensures you know exactly how much money you have to negotiate with and prevents the dealer from marking up the bank finance rate to earn partial interest payment.
  • Don’t dress too fancy or too casual and come prepared.
    Dress too well and you’ll have to work to lower your dealers expectations, dress too poorly and risk being ignored altogether. Dress like a grown up and bring a notebook with you filled with research, it’ll let the dealer know you’re serious.
  • Wait till the end of the month.
    Most dealers want to fill quotas to hit their end of the month bonuses. Sometimes the bonus is actually higher than the commission, meaning the dealer is more likely to negotiate to make a sale.

To learn the other three rules check out the video and stay tuned to this channel for more consumer comeback tips!

Credit Score – Everything you need to know

 What is a credit score is and why is it important?

Credit scoreA credit score is a number representing a person’s trustworthiness for paying back debt based on the formulaic analysis of their credit reports. It is a vital part of how banks and other financial institutions determine whether or not to extend a line of credit to a person. A higher credit score doesn’t just provide access to larger lines of credit, however. It’s also rewarded with access to lower interest rates as well as insurance premiums. Poor scores can be additionally restricting, like making it difficult to rent an apartment or get a job, for example.

There are many different formulas for calculating credit scores as well as a number of reporting agencies with different variations of data. As a result, every person has multiple credit scores which can differ depending on where you get it from. Which credit score is used as well as how it is interpreted and applied (e.g. to requests for credit) varies between banks.

The most widely known credit score is FICO, developed by the Fair Isaac Corporation, which has a numeric range of 300–850 and is used by many mortgage lenders to help determine risk. Each credit reporting agency also has their own formula as well as a relatively new industry standard created by the three agencies to compete with FICO called VantageScore.

Credit scores are not free. They can be purchased directly through one of the three credit reporting agencies or FICO. “Free” offers are usually bundled with a credit monitoring services; some of which have free trial period, but usually require a credit card which will incur monthly charges if not canceled.

 Credit score is based on credit reports

 

   

Credit reports are detailed summaries of your financial accounts that the credit score is based on. Credit reports are free of charge by law through the main credit reporting agencies: Equifax, Experian, and TransUnion.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.                   – ftc.gov

There is even an official website for you to access them all called AnnualCreditReport.com. If you have been rejected for a loan or credit card due to a poor credit score, the very first thing you should do is get all three credit reports so you can see why. And if you have never seen your credit reports before, it’s free and the best way to understand what’s behind your own personal credit scores.

 How credit score is calculated:

For simplicity, we’ll look at how the FICO formula works as an example.

FICO credit score breakdown

image source: http://www.myfico.com/

A more in depth overview of the individual factors for each category can be found here.  But the big takeaway is that the majority of the FICO score (65%) is based on your payment history and utilization, or how much debt you have compared to your available credit (under 10% is optimal).  Other factors include: the length of your credit history, new credit, and the type of credit accounts.  Of course, every score is calculated differently, but the relative principles remain largely unchanged.

 

 What’s a good credit score?

While anything below 600 is considered a bad score, the better your score, the more preferable interest rates will be. So one objective way to judge your credit score is by the interest rate it affords you. According to myFICO.com, the current breakdown is as follows (based on a $216,000 30-year, fixed-rate mortgage):

If your FICO® score is… Your interest rate is… And your monthly payment will be…
National interest rates, as of 3/7/2012
760 – 850 3.62% $984
700 – 759 3.84% $1,012
680 – 699 4.02% $1,033
660 – 679 4.23% $1,060
640 – 659 4.66% $1,115
620 – 639 5.21% $1,187

 

 More information on credit scores:

Now that we’ve covered the basics, it’s time for you to start working on building a positive credit history.  The following articles provide much more in depth information on credit scores, credit reports, and guides for starting and improving your standing with credit agencies.  We hope you find this information helpful!

How Credit Scores Work What Hurts Your Score
Complete Credit Score Guide Improve Your Credit Score
Credit Reports and Credit Scores Establishing Good Credit
Get Your Free Credit Report DIY Credit Repair Guide
Dispute Credit Report Errors Bankruptcy
Credit Score Ranges Protecting Your Credit From Identity Theft
Financial Education for Teens A Report on Investing, Credit, and Money Management

 

 CreditScore.net Personal Finance and Frugal living blog

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