Credit Scores Basic Understanding Credit scores and credit reports are different o Credit Score likelihood or probability of repaying borrowed money debt borrowed money Indicates level of financial responsibility Snap shots in time Credit Report data gathered by credit bureaus used to compute credit scores o There are 3 Credit Bureaus 1 Experian 2 Transunion 3 Equifax Current credit score standards got higher making it harder to get excellent credit loans FICO is to credit score as Kleenex is to tissue Current FICO scores vary with economic conditions o Excellent 760 850 o Good 660 759 o Fair 620 659 o Poor 300 619 o Payment history 35 Factors determining your credit score o Ratio of amount owed to available credit 30 o Length of credit history 15 o New credit 10 o Types of credit used 10 Credit Bureaus collects information on individuals 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 and judgments Best to be under 20 Ratio total amount owed total credit available Length of credit history Time I ve had credit How long different accounts stay open Length of credit history includes New Credit Appearances how you look to the credit card company Inquiry types Kinds of Credit 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 Free Credit Scores you always give something up Credit Cards Credit cards short term unsecured loan o Backed up by nothing other than a promise to repay o They are convenient occasionally necessary and sometimes provide o Temptation source with high costs if irresponsibly used Advantages rewards Disadvantages Credit Card Facts o 1 Don t increase income o 2 Obligate future paychecks Compounding A loan is borrowed money a debt Time Value of Money 1 today is worth more than 1 tomorrow 1 15 min o If you take out a loan you ve borrowed money and have a debt You are legally obligated to repay the amount you ve borrowed interest o If you buy another s loan you are investing You expect to be repaid the principal you lent out 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 on the loan 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 amount o The shorter the intervals between compounding the larger the amount o The higher the interest rate at which money compounds the 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 years 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 Automatic bill paying Joint loans 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 Buying A Vehicle What can you afford 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 the item o Gap insurance covers the gap the difference loan amount left to pay you ought with it 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 o If no backlog sufficient supply 5 above dealer s cost Compute car s cost less destination charges taxes or license Car prices tag o With backlog insufficient supply May sell at a price higher than MSRP o Kelley Blue Book new and used cars o NADA Yellow Book new and used cards o On line sites ww thecarconnection com Your ultimate weapon is your feet Dealer Negotiations 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 Bring proof Shop car price NOT monthly payment Negotiate from dealer cost up Start low raise in small increments Make offer