Credit Score Basic Understanding 02 12 2014 Credit scores FICO credit reports are DIFFERENT Credit Score likelihood of repaying borrowed debt o Indicates level of financial responsibility o Snap shots in time Credit Report data gathered by credit bureaus used to compute A credit report is data gathered by credit bureaus used to credit scores compute credit scores o 3 Credit Bureaus 1 Experian 2 Transunion 3 Equifax Current score standards got higher making it harder to get excellent credit loans etc FICO is to credit score as Kleenex is to tissue Credit Bureaus You have 3 credit scores usually averaged together o Humans involved in data entry make mistakes There are many credit scores but FICO is the one used by the loan industry o Fair Issac s Corp Starting to make them free to individuals Payment history is number 1 thing to affect your credit as it gets older it gets less important Payment History Late payments hurt Bankruptcies foreclosures judgments Ratio total amount owed total credit available Best to be under 20 Length of credit history 1 Time I ve had credit 2 How long different accounts stay open New Credit Kinds of Credit Appearances how you look to the credit card co Inquiry types Revolving credit cards Open lines of credit Installment car mortgage How many credit cards should you have As many as you need What s your approximate credit score http money msn com credit rating your credit score aspx Only time can fix your credit score Credit Cards Credit Cards 02 12 2014 Credit cards provide a short term loan that is unsecured by anything o They are convenient occasionally necessary and sometimes o They are a source of temptation and have high costs if other than a promise to repay Advantages provide rewards Disadvantages irresponsibly used Credit Card Facts o 1 Don t increase income o 2 Obligate future pay checks Time Value of Money 1 today is worth more than 1 tomorrow Compounding A loan is borrowed money a debt o If you make a loan take out a loan issue a loan you ve borrowed money and have a debt You are legally obligated to repay the amount you ve borrowed o If you buy another s loan you are investing You expect to be repaid the principal you lent out plus interest Interest is the cost of money Borrowers pay lenders interest for being able to use their money o Interest rates depend partly on how risky a loan is what is the borrower s likelihood of default Contracts give the terms under which money is lent repaid o Some are common enough to have their own names bonds certificates of deposit mortgages etc Compounding occurs when interest is paid off on interest Shorter compounding periods result in higher yields Points to note o The longer money compounds the larger the amount o The more frequently money compounds the larger the o The shorter the intervals between compounding the larger o The higher the interest rate at which money compounds the amount the amount larger the amount Credit Card Rules Interest rates on new cards cant change for 1 year unless o You re informed otherwise o Variable as opposed to fixed interest rate card o Payment is late by 60 days After 1 year interest rates can rise on new purchases o You must be told and you can refuse the higher rate BUT Minimum payment amount can increase Card is typically canceled Remaining Problem Universal default Over the limit protection Cant charge for inactive card BUT can charge a maintenance fee If under 21 yrs need o 1 Co signer if you co sign both people take full responsibility o 2 Proof of ability to repay Credit Card Mistakes Accepting credit card mail offers at face value Spending to get rewards although rewards are good Going credit card crazy Playing the 0 transfer game Accepting Apply Now Save 10 offers Pay for friends with credit card and keep the cash Cash advances Joint loans Automatic bill paying Too Much Debt 1 Don t create new debt 2 Figure out how much you owe 3 Decide what to pay off first one with highest int rate 4 Decide where payments will come from o Transfers o Borrow additional money o Reduce spending o Earn more money 5 Negotiate lower interest rates 6 Follow your plan Car Buying What can you Afford 02 12 2014 Can you o Down payment 20 minimum o Pay off car 3 4 years Why these guidelines o Upside down loan underwater you owe more on a loan than o Gap insurance covers the gap the difference loan amount the item you ought with it left to pay value of the item o o The more interest paid the higher the real cost of the item 1st Dealer Visit Beforehand Get information o Idea of what you want 1st trip goal o Research Get car brochure Check out the MSRP sticker Salesperson s goal o Sell car today Prevents comparison shopping You tend to act impulsively emotion Test drive car as close as possible to intended purchase o Radio off o Ask salesman for silence What s the Price MSRP Manufacturer s suggested retail price o Gives make model final assembly point o Base price o Options packages o Fuel economy o Destination charge Dealer s fee Taxes Tag license Cost Invoice Dealer s cost Dealer s invoice price are NOT same Salesperson paid a of Selling price invoice price Invoice price o Manufacturer to customer incentives rebates o Manufacturer to dealer incentives Holdbacks flooring assistance reduces the dealer s car cost to below the invoice price o Invoice must minimally have Maker s logo Dealer s address o Is the dealer required to show you his actual invoice No Good Vehicle Price New vehicle Dealer Negotiations o If no backlog sufficient supply 5 above dealer s cost o With backlog insufficient supply May sell at a price higher than MSRP Selling technique exhaustion hunger Negotiations keep issues separate o Car price a separate issue o Financing another separate issue o Trade in a third separate issue o Know dealer s cost before negotiating Start low raise in small increments Make offer explain it stick to it be prepared to leave Let your knowledge show Take a friend Don t fall in love Miscellaneous Best time to shop o Model Year end clearances o End of month o Factory incentives o When others aren t buying Does price include rebate o Always ask if amount includes rebate Poor Negotiator Buying service Make an offer o Fax it to multiple dealers Specify exact vehicle Ask dealers for their best offer Signing contracts All contracts o Understand all terms o As Is voids all guarantees o Verify math all terms o Leave no blanks on contract line through o Get everything in writing Peculiar to Vehicle