Yesterday we discovered that managing your credit is crucial if you hope to get the best interest rate on your car loan. See Part I here. If you end up paying a few percentage points more than necessary, it can cost you hundreds, even thousands of dollars more than it should over the term of the loan.
When I was Internet Manager for a major car dealer, I saw another downside to not managing credit properly: the added interest expense can increase your monthly payment to the point that you no longer qualify for the car loan you want.
Free Credit Reports
Manage your credit history by monitoring what the credit reporting companies say about you. Do this by obtaining a copy of your credit report to make sure:
- there are no inaccuracies in the report that can negatively impact you.
- you catch anyone making unauthorized use of your credit.
Did you know that you can get a copy of your credit report once a year for free from each of the three major credit agencies? Unfortunately, some companies prey on our ignorance of how the system works. Many Americans been taken in by their advertising. The ads entice you to go to a specific website to get your free credit report, only to discover there is nothing free there. Instead, a free credit report was simply bait to get you to sign up for a service or have your inbox spammed with unwanted advertising.
So how do you go about getting a free credit report? A respected consumer advocate, Michael Finney, says he only recommends one website for obtaining free credit reports: AnnualCreditReport.com.
This site is run by the three major credit reporting agencies, Experian, Equifax, and Transunion.
To maximize your ability to watch over your credit history throughout the year, Michael Finney suggests you apply for your credit report through a different single company every four months. You still qualify for a free annual report with each company listed above, but by spreading your request out to a single company every four months, you can monitor your credit history throughout the year.
Help Saving Money
Readers of this website know that I recommend you pre-qualify for a car loan through a financial institution other than a car dealer before walking onto their sales lot. This allows you to remain in control of the car buying process by protecting yourself if the dealer quotes an interest rate higher than the one you qualify for. If the dealer quotes a rate lower that the one you walked in with, take it and save even more money.
If you can’t pre-qualify for a car loan, the next best thing is to know your credit score--also known as your FICO score--before applying for a loan with a dealer. This helps keep them honest. The free credit report you get through AnnualCreditReport.com does not include your actual FICO score; these credit agencies charge a small fee for that.
With your FICO score in hand, ask the dealer to see the published qualifications for the loan tier they based your interest rate on. You want to compare your FICO score to those criteria to see if you’re getting what the industry calls the “buy rate,” that is, the lowest interest rate you actually qualify for.
Why are you going through this process? It allows you to catch the dealer in the frequent practice of bumping the rate beyond the one for which you actually qualify. The purpose, from the dealer’s perspective, is to increase their profit. If the dealer won’t back down, walk out and keep looking for a financial institution that will float you a loan--or a dealer who will give you a loan at the lowest possible interest rate.
Car Dealer Tricks
For help side-stepping other tricks that car dealers play on consumers, see my Car Dealer Tricks series, beginning with Buyer Beware.