That Little Three Digit Number

Did you ever think that one of the most powerful three digit numbers in your life would be your credit score? That number predicts to lenders, employers, insurance companies and landlords your character and whether or not you’re trustworthy enough to do business with.

Having a good credit score, upwards of 650, will open doors for you in the world of credit but, anything less than that and you enter into the sub-prime zone and that will be very expensive. Credit scores that are about 580 and below can cost you thousands and thousands of dollars over your lifetime.

Just as a quick example, let’s say you want to purchase a vehicle and the amount you need to finance is $25,000.00. Most manufacture supported lenders like Ford Motor Credit and GMAC offer special financing as low as 0% but, for argument sake, let’s say that if you have good credit you could secure 5% interest. Compared to someone with bad credit, a credit score of around 550, you could expect to pay about 19.95% interest or higher.

On a $25,000.00 auto loan the person with good credit would pay $403.41 per month for 72 months. The total finance charge would be $4045.34. Now, are you sitting down? The person with bad credit on the exact same amount to finance would pay $602.69 per month for 72 months. (That would be if they got approved with no cash down.) The total finance charge would be $18,393.50! That’s $14,348.16 more than the person with good credit! On just one credit purchase, a person with bad credit is penalized $14,348.16!

Now apply this scenario to all of their credit purchases like credit cards, mortgages, small personal loans not to mention higher costs for auto insurance! We’re talking thousands and thousands and thousands of dollars!

How you handle your credit is a very serious matter. The good news is this; you can change your credit situation starting today. The absolute first step you need to take to correct your credit situation is to obtain a copy of your credit report from all three credit reporting agencies, Equifax, Experian and Transunion. You are allowed one free copy of your credit report per year and requesting that copy does not affect your credit score. You can get your free credit report by clicking on the advertisement on this page.

Once you have your credit report, you need to have all mistakes corrected. I promise you, you will find mistakes. The quickest way to get your credit report and to make corrections is to do it online. You can also call each credit reporting agency and they will mail you your report with supporting documents for disputes.

Whichever way you choose doesn't matter, just choose one and get the mistakes corrected first.

If you have questions about your credit situation feel free to contact me.

Credit Score Myths

There is a ton of misinformation out about what does and doesn't hurt your credit score. The surprising thing about this is the sources of this misinformation: credit advisors, mortgage brokers and auto finance managers. These people should know better!

I must say, there are also many professionals out there that really know their stuff and offer great advice to their clients. Be careful who you take advice from when that advice directly affects your credit score and ultimately how much obtaining credit will cost you. Bottom line, if your source for credit advice gives you any of the following misinformation, get a new source.

Myth #1 Closing accounts will improve your credit score

Wrong, Wrong, Wrong. Closing accounts does not help your credit score it will lower your credit score! Having a large number of revolving accounts (credit cards) open will in fact lower your score. Once that has happened, it has happened and the damage is done. Closing a few of your revolving accounts does not correct the damage.

One of the factors that determines your credit score is the length of time you have had credit. Closing older accounts will make it appear as though you have had credit for a shorter amount of time, therefore lowering your score. To make the best of the situation, it is a much better move to payoff as many credit cards as you can. That will increase your balance to high credit available ratio. The conclusion from most lender's scoring models is that you have a high number of revolving credit accounts but you don't abuse your credit and you don't have a large number of accounts with balances or high balance to available credit ratio. If you have a large number of revolving debt with balances your credit will in many cases score in a lender's system as being a high risk for future bankruptcy.

The best move, pay off as many revolving accounts as you can and do not close any accounts.

Myth #2 Checking your credit score lowers your score

By obtaining a copy of your credit report directly from Equifax, Experian and Transunion you will not lower your credit score. I highly recommend that you check your credit often. You can check what is on your credit and See your credit score on FreeCreditReport.com by clicking here. FreeCreditReport.com is a service offered to consumers by Experian. I personally use Equifax's Credit Watch Gold 3-in-1 service and you can Get Equifax Credit Watch Gold 3-in-1 Now! by clicking on the link. Both offer a great service to consumers and it's important that you know what is on your credit and what your score is.

Applying for new credit will temporarily lower your score. You can minimize the damage caused by credit inquiries by shopping for new credit over a very short period of time. Multiple inquiries in a 30 day period are treated as just one inquiry. Don't shop till you drop, do your research first, then choose your lenders and minimize your inquiries.

I am amazed by the number of people who go from car dealer to car dealer shopping for the best deal and allowing each dealer to submit their credit. I have seen people end up with 30, 40, 50+ inquiries while trying to find the best deal. Listen up people, that will lower your credit score and destroy your chances for the best loan rates and terms. Don't do it.


Myth #3 Chapter 13 bankruptcy is better than a Chapter 7 bankruptcy

This cannot be farther from the truth. I have been in the auto finance business for 22 years and I can tell you this is false. People think when filing bankruptcy that they are doing the best thing by paying back as much of the debt as they can. Wrong. I know this may be hard to fathom, but filing for Chapter 13 is not the best plan.

Right now, I use 14 special finance lenders and only 2 of them will even consider a loan for a person who has an open Chapter 13. If the bankruptcy is open, you have to have permission from your trustee to make an installment purchase. If the loan is approved, the loan parameters are very difficult and the interest rate is 24.99%! If the Chapter 13 is discharged, there are a couple additional banks that will consider the loan but the parameters and rates for the loan only improve slightly.

A person who files a Chapter 7 bankruptcy and it is discharged has many more options. Many banks will consider offering a loan and the parameters and rates are much much better. You may even qualify with a primary lender instead of a sub-prime lender. Rates can be as low as 9% and the terms, such as downpayment can be as low as zero down.

The bottom line, pay your bills on time, correct errors on your credit reports, pay down your debt and apply for credit sparingly.

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