By Justin Leach
Ah, that new car smell… it’s intoxicating! Whether you’re test-driving a sporty little convertible or an SUV with a DVD player for the kids, that new car smell is a promise of good times to come.
Sitting in the driver’s seat, you marvel at the amenities – buttons, screens, satellite radio, individual climate control. Best of all, unlike your old car, there is no “strange noise under the hood.” You want that new car, and you can’t wait to drive it home!
OK, it’s time for a reality check. You work with the dealer to settle on an acceptable price but, unless you came in with a wad of cash, you will need to sit with a finance manager.
This is the moment when your car buying experience comes to a fork in the road. Depending on the research you completed before arriving at the dealership, financing your car can be a fairly straightforward, no-hassle transaction. Or it can be filled with unexpected surprises, hand-wringing and doubt.
Ask most people how much they knew about their own credit history, credit score, financing and insurance options before they walked through the dealer’s door, and those who failed to do their homework probably will say they had a less-than-enjoyable experience when it came time to finance their car.
Understand and manage your credit right, and you will enjoy a better car buying experience and get a better deal, too. Whether you are looking to buy a car next week or three years from now, you can do several things today to better understand and improve your credit.
Car dealerships take several criteria into consideration when you apply to finance or lease a vehicle. Your credit history consists of two elements: your credit report and your credit score.
The creditor's main purpose for reviewing your credit report is to help decide if it wants 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 (promotional and account management inquiries are not shown to other creditors and do not impact your credit score).
The three major credit-reporting agencies – Experian, TransUnion and Equifax – keep a running tab on your credit history based primarily on information received from creditors and public records.
The contents of your credit report are used to compute your credit score. These scores also are considered when evaluating your creditworthiness.
The credit scores generated by the credit bureaus (often referred to as FICO® scores) range from 300 to 850. Generally, scores of 700 or higher are considered good. According to Experian, about 58 percent of Americans own a score of 700 or higher.
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 maintained your accounts?
New credit and credit inquiries: Have you recently taken on more debt?
Types of credit established: may include credit cards, mortgages and car loans (each may be valued differently).
To maintain good credit standing, you must take a proactive approach. While credit bureaus attempt to remain as current as possible, they are only as accurate as the information they receive. Reviewing your credit reports (yes, all three) is critical.
Now that you know what to look for, get a free copy of your credit report at www.AnnualCreditReport.com. If you find inaccurate information, you can submit an update or dispute an error. But don’t expect overnight results. It may take 45 days for changes to be reflected on your credit report, making it even more important to review your credit reports well before you walk through the dealership doors.
It’s a lot to manage, but if you understand your credit report and score and are diligent in monitoring and correcting the information maintained by the credit bureaus, you too can enjoy that new car smell and feel good about it all the way home.