Credit Scores, Reporting, and Use

A few years ago I set out to buy my first car.

This was a big deal for me, it was to be my most expensive purchase as well as my greatest debt.  Thankfully I was able to get a lot of advice from the site The Motley Fool (check out their steps to buying a car).  Even if you don’t follow each of their steps I think you will find their information useful.

I don’t want to go into what my whole car-buying process was like.  That might be too long a post (there was much drama but that’s for another time).

What I want to discuss is knowing your credit score and getting financing before-hand.

I knew I needed to check my credit report and score before making a big purchase.

 

I purchased all three reports and my score online.   I was surprised at what I saw!  I expected to have a mediocre score due to past late fees and debt but what I found was that my score was actually very good.   I guess my efforts at reducing my debt and transferring balances to 0% cards helped.

With my credit score in hand my next step was to secure financing.

Included in my credit score was a description of how the score was determined as well as what kind of credit I could expect.  I applied for financing through an online bank and received a check to fill out when the purchase was made.  Due to my credit score my interest rate on the financing was favorable and below the average for a car loan.

I don’t know how many of you have purchased a car but you may not know that you aren’t done negotiating after you have figured out the price of your car-to-be.

Oh no!

You spend your time and effort haggling over the car price with the sales person and maybe the sales manager and you finally come to an agreeable price and you let out a sigh of relief.  Finally, all I have to do is pay for the car and it’s mine!

Well at this point the sales person brings you into the office of the finance manager!  Sitting in the manager’s office, he looks over my forms and tells me I can get financing for X percent and goes into what I need to sign (it’s in his interest to give me a loan with as high a rate as possible).   “Whoa,” I say.  “I know my credit score can get me better financing” I tell the manager (keep in mind I already have financing in place).   The manager looks at my credit report and tells me I do have a good score and offers me a lower interest rate.  This rate is still higher than my outside financing!  It’s then I tell him that I already have financing so I don’t need to finance through the dealership.  Wanting to have my debt through his dealership he then offers me a rate about half a point below what my outside loan was.  I accepted the new rate and was finally able to buy my new car.

If I didn’t have a loan already and didn’t know my credit score before hand I would have paid significantly more for my car!

It would have been very difficult to negotiate at this point without those two pieces in place.   Having my credit score and a loan in place allowed me this:

• I knew what kind to interest rate to expect.
• I was able to get a rate lower than the financing I already had set up.
• I saved money.

Finally

Remember, the price you negotiate with the sales person is not what you are paying for the car (unless you’re paying in full of course).  You have to add in the cost of your loan.  When you go into a major purchase you need to have as many tools and as much information as possible because you can be taken advantage of and you might not even know it.

Make sure to check your credit score and know your financing options before-hand!