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http://www.msn.com/en-us/money/credit/habits-of-people-with-...

"Without even knowing it you might be doing things that are damaging your credit score, which affects your ability to get credit and the interest rate you pay when you do get credit. A 2014 survey by Credit.com found that consumers sometimes don’t understand which actions will and will not help them improve their credit scores. So how do you identify and put an end to credit-damaging habits and start forming credit-boosting habits? Start by understanding the basics."
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One of the options listed here has always left me confused:

"Be especially careful when car shopping because Detweiler has heard lots of complaints from consumers whose scores dropped when they had several dealers pulling their reports for financing options. Rather than let a dealer shop your credit, choose a lender you like beforehand and get pre-approved for a loan."

Okay, it's been a while since I took out a car loan, so maybe everything's changed lately. But about ten years ago I was in the market for a used car (and a used car loan) and taking advice like this, I approached the bank where I had a checking account:

Me: Hello, I'd like to get pre-approved for a car loan.

Them: Which car?

Me: Um.

Them: How much does the car cost? What year is it? How many miles does it have? What color is it?

Me: I don't understand your questions. I haven't set foot on a car lot yet.

Them: No problem. Go find the car you want to buy, then come back and ask us if we'll loan you the money.

Me: See, here's the thing. The sort of car I am going to shop for depends on what kind of loan I can get. It would be pointless for me to pick out, say, a $20,000 car if you'll only loan me $10,000.

Them: We can't tell you how much we'll loan you until you tell us what car you want.

Me: That would require me to go to a car lot, tell them I want to buy a particular car, and then leave the car lot to come back and talk to you. I have a hard time doing that. I know you'll snicker at me later, but I struggle with high-pressured sales people. The only way I can leave a car lot without having bought a new car is by brandishing weaponry.

Them: Ah, I see the problem. Okay, let's do this. You put up $20,000 in a secured account, and then we'll pre-approve you for a $20,000 car loan.

Me: You're funny. If I had $20,000, I would use it to buy a car, and I wouldn't need a loan.

Them: Well, perhaps you can save up the money and come back when you're ready to see what pre-approved loans we can offer you.

Me: Yeah, sure. <Walks away grumbling.>


And so what inevitably happens is that I let the dealership handle the financing, seeing as how they already know what color car I want to buy.
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Okay, it's been a while since I took out a car loan, so maybe everything's changed lately.

Things have changed. I know that I have often received emails from my credit union that I am pre-approved for a car loan, and when the time came to get one last October, we were already pre-approved so it was a pretty easy process to get the loan.

Also, I knew what I could get at the credit union, and the dealership did not have anything better, and also used my credit union as one of their lenders, so I still ended up getting the loan at my own credit union.
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Only Apply for Credit When Necessary

I am guilty of applying for cards when the discount gets high enough...

For example, even though retailers often offer discounts on purchases when you sign up for their credit cards, these cards often have low credit limits

I have not found this to be the case, actually, but it could be because what used to be store cards seem to have all turned into real cards, VISA, Mastercard, etc...I applied for a card over the holidays and on the FIRST bill they said they were increasing my credit limit because I had been such a good customer...what??
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I have not found this to be the case, actually, but it could be because what used to be store cards seem to have all turned into real cards,

Target and Lowes are exceptions. I have both store cards and both have low credit limits $1-$1.5K
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And so what inevitably happens is that I let the dealership handle the financing, seeing as how they already know what color car I want to buy.

Letting an honest dealership handle financing is not always bad. I was car shopping with a relative who had totaled her car. The financing that was offered by the dealership was 1.8%.

There are horror stories about games played by predatory dealerships. An acquaintance had bought a new SUV, and said they got a good rate of 7.5%. I didn't push the issue, because it would be inappropriate to ask about their credit.
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The last 2 car loans I had, one was offered by Toyota at a good rate (1.9% in the 90s IIRC), the previous one was offered by my bank and they took an extra 1/2 or 1/4 % off the rate for having the payment auto-deducted from checking. Too long ago to remember the rate any more, but it was better than the dealer could offer.

Another tip is to put enough down so that your car is never underwater, not even when you drive it off the lot (easier said than done for the working poor, but for the middle class, should be doable). And to continue driving the car after the loan is paid off while you save for a down payment (or payment in full) for your next car. It was always very satisfying when a loan was paid off and I was saving for my next down payment. I never took a loan longer than 3 years and my last loan (the 1.9% from Toyota) was a 2-year. And was limited in amount you could borrow (IIRC I had to put 1/3 down)--I think they were enticing people to the dealership with a great rate but tried to trip you up on the requirements.
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Another tip is to put enough down so that your car is never underwater, not even when you drive it off the lot

If you already have the cash to buy the car, but the loan is better financially as just happened when we bought DH's truck in October and got a 1.49% rate, then it doesn't matter if the car is underwater or not. In fact, we borrowed 100% of the cost and stretched it out as long as they would let us, which was 5 years. I don't care if we are underwater because that is no different than having paid for it in cash and losing the depreciation if we total the car. We'd owe the money either way, but the loan made better financial sense for us.

Also, since we had the cash and the loan was just a financial tool, I didn't care how big the payments were. I just take it from the cash that we had already put aside.

And to continue driving the car after the loan is paid off while you save for a down payment (or payment in full) for your next car.

Absolutely. If you keep making those payments to yourself, then you always have the cash for the next car, and can decide at that point if it makes better financial sense to use your cash or to take a loan. This gives you great flexibility.
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Another tip is to put enough down so that your car is never underwater

I'm not sure how important it is to worry if a car is underwater. I think it depends on your insurance more than anything. As long as they will pay full repair costs/replacement costs for a new vehicle you should be ok (and gap insurance exists for this purpose I believe). Alternately, if you have the money in your savings to pay any difference between the loan and the value if something happened, then you should be ok.

The people who seem to be most underwater are those who are using a new car loan to roll over a bunch of other debt and that is a whole different kind of problem.
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I'm not sure how important it is to worry if a car is underwater. I think it depends on your insurance more than anything. As long as they will pay full repair costs/replacement costs for a new vehicle you should be ok (and gap insurance exists for this purpose I believe).

Insurance, including gap insurance, matters the most for people who don't have much in disposable assets. Even then, gap insurance plus auto insurance would just cover the loan if a car was totaled; the unfortunate person who was upside down when his car got totaled would than have no insurance proceeds that could be put toward a replacement vehicle. Absent other assets, he would have to borrow 100% of the replacement cost and end up upside down again when he drove off the lot.

There's a similar phenomenon that happens at the other end of the car's useful life. The car that got totaled by alBambi's suicide attack in 2004 was old but reliable. The insurance company valued it at $2500 at the time it was totaled. There was no way I could buy as reliable a replacement for $2500. I ended up spending about $13K because I needed a car *right now*. Fortunately, I had a good credit score. I was able to get pre-approved for more than I wanted to borrow, and borrow the $9K that I needed because most of my liquidity had just been committed to buying me out of a bad marriage.

FWIW, the dealer said he could get me a good rate. I told him the rate my credit union gave me. He might have been able to match it, but he couldn't do better.

Patzer
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No. of Recommendations: 3
Well, my last car loan was also about 10 years ago and my experience went like this.

Me: I'd like to get pre-approved for a car loan.
Credit Union: New or used?
Me: New.
CU: How much?
Me: $20,000.
CU: Okay. Our interest rate for new car loans is %.
Me: That's it?
CU: If you give me permission to check your credit score I can send you a pre-approved letter today.
Me: Okay.
(2 minutes later)
CU: I am emailing you the letter. Once you find a car, then call us and we can cut a check to the dealership for the $20,000. It may take 1 day, but if you call in the morning we may be able to have it by 3pm. We can have it at your local branch.
Me: Thanks!

The credit union had fixed interest rates for either a new or used car, so there wasn't anything to negotiate there. I didn't even check with the dealers for loans, since I knew going thru the CU would mean I could make payments easy (I could just dial up and make a payment at any time). This also made it easy to pay off the loan early as my circumstances changed.
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"The only way I can leave a car lot without having bought a new car is by brandishing weaponry."

I have walked out of a car showroom too many times to count. And at least a few times after a loud shouting match with the salesperson/manager. They need you, you don't need them.
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No. of Recommendations: 3
I have walked out of a car showroom too many times to count. And at least a few times after a loud shouting match with the salesperson/manager. They need you, you don't need them.

Another thing I don't need is that kind of needless drama in my life.
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"Another thing I don't need is that kind of needless drama in my life."

No drama for me - either they give me the car at the price I want, or I walk. They need me, I don't need them.
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I guess we have different concepts of 'drama.' Getting into a loud shouting match with a salesperson isn't how I'd choose to spend my time.

Whatever works for you, though.
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Lea77,

You wrote, (and gap insurance exists for this purpose I believe)

Gap insurance sounds like a great idea. But it's usually pretty expensive if you consider how much it costs vs. how likely you are to use it times the amount you / your lender are likely to recover. And if you are worried about having the money to cover that gap ... saving for a more serious down-payment and just assuming that if your ride gets totaled you probably aren't getting it all back also works.

BTW, I'm not saying GAP insurance is always a bad thing. I'd check with your insurance company to see if they offer a GAP rider for your policy. Be sure to understand the cost and potential benefit. And be skeptical. Also be sure to remove the rider after a year or two. No point in paying them for something when they're not going to pay you.

- Joel
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Gap insurance sounds like a great idea. But it's usually pretty expensive if you consider how much it costs vs. how likely you are to use it times the amount you / your lender are likely to recover.

I don't think this is something I plan on using personally, it just solves the problem if someone is worried about being severely underwater. I don't plan to buy a car expensive enough that the small difference between what I paid and and what it is worth is enough to break the bank. As I said, I think the people most underwater are rolling in other debt. And the odds you will have a wreck that totals your car early in a loan are low.

IF:
Even then, gap insurance plus auto insurance would just cover the loan if a car was totaled; the unfortunate person who was upside down when his car got totaled would than have no insurance proceeds that could be put toward a replacement vehicle.

That unfortunate person would probably just run out and get another loan. They likely didn't put much down on their car if they are severely underwater anyway.
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To me, the most important things are

Pay my bills on time & have plenty of credit

(And avoid web pages that when linked require navigation to get to the gist of it.)
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No. of Recommendations: 22
To me, the most important things are

Pay my bills on time & have plenty of credit


I think the cited article misses the point of how people get excellent credit scores. It focuses on the actions, but what looks really obvious to me about people who have excellent credit is the attitudes:

- They are more concerned with what makes financial sense than with a high score.

- They don't typically think about maximizing their credit scores. Instead, they think about paying the least interest, or getting the best rewards from their cards, or whether borrowing cheap money makes more sense than paying cash for a given purchase.

- They don't typically regard paying on time as an actionable item. It's a given of how they organize their finances and their life. In many cases, they pay bills on time simply because that's the right thing to do and/or it's what they agreed to do.

The actions they take because of these attitudes results in a good credit score; but the score itself is not the goal.

Patzer
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I think the cited article

As noted, I didn't read it. I was just referring to what I did.
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"And avoid web pages that when linked require navigation to get to the gist of it."

I too hate when that happens.
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I have walked out of a car showroom too many times to count. And at least a few times after a loud shouting match with the salesperson/manager. They need you, you don't need them.

Skip the salesman and buy through the internet.

PSU
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I have walked out of a car showroom too many times to count.



wow- I'm not sure that I have ever even walked into one.



peace & lifestyles
t
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"wow- I'm not sure that I have ever even walked into one."

A bicycle is a good means of transportation, for sure.
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I smoke and drink ... those are my habits (and yes, I have excellent credit ... but probably a shorter life expectancy).
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"smoke and drink"

I was getting my annual physical recently, at a new doctor, and they were asking me the usual 500 questions, one of which was, "do you smoke?" To which I answered, "in my 50+ years, I've probably smoked 1 pack of cigarettes."

He laughed and said, "non-smoker."
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