Many people know that they need a high credit score to get a loan. A high credit score means that there is a lower chance that the money will not be repaid and the easier it is to borrow money. However, it is not widely known what goes into a credit score.

Credit bureaus use information about each borrower that is taken from a number of sources. Former employers, current employers, the number of residences a person has had in the last five years and whether or not the borrower owns his/her own home all provide some input data. In addition, a person’s credit history is examined and how often bills are paid on time is considered. Credit bureaus also look at legal issues such as civil suits, judgments, bankruptcies and criminal convictions which may affect a person’s credit.

All of these items go into the evaluation of a person’s credit. The end result is a determination of a person’s capacity, character and collateral - the three Cs of credit.

# Capacity is concerned with a person’s ability to repay the loan. The lender evaluates the borrower’s income and compares it to current expenses. The length of time a person has been at his/her job, the number of dependents and any alimony or child support payments are also considered. Not only does capacity involve a person’s current financial condition but it also considers future potential income - as would be possible for doctors, lawyers and professional businesspeople.

# Character is a judgment of a person’s willingness to repay debt. By checking into past credit history a lender can determine if the applicant is living beyond his/her means, if he/she is overextended or has been delinquent in paying bills. Character also reflects a person’s honesty in giving accurate and complete information on the application. Judgment of a person’s character also includes an examination of a person’s stability - how long has the applicant been at his/her current employment and how long has he/she resided at the present residence.

# The third C is collateral. Since there is always the chance that a person will be unable or unwilling to repay the loan, lenders often require collateral (generally property is used to secure the loan). If the borrower defaults on the loan, this property can be seized and sold so that the lender can recoup the money lent. The value of the collateral is directly tied to the loan. A car loan may require the car as collateral, a property loan may require the property as collateral. Sometimes, a lender can require money as collateral. A Certificate of Deposit or an annuity may be pledged for the loan. In all cases, if the borrower fails to pay, the asset is seized as repayment for the loan.

So you’ve found a car you want to buy and as with many people you don’t have the cash in hand to buy it. Just about anyone can get a car loan nowadays even if they have bad credit. But it is important to get the best deal possible on your auto loan and not just go to the first place that is willing to hand you the money. Here are some ideas for getting the best deal on your car loan.

Manage Your Credit

Before you even look at a car to buy, you should know your credit history. All consumers are entitled to a free credit report, which can be accessed online. View your history to find out if there are any discrepancies that need to be fixed. Any errors can affect your auto loan rate. Fixing them now will save you a lot of headaches in the future.

Know How Much You Can Spend

Just because you want a Porsche doesn’t mean you can afford it. Sit down with your monthly bills and determine how much money you have in your budget for a monthly car payment. And don’t forget to you will need to have full-coverage insurance on a new car, so determine how much that will cost as well. Of course this cannot be fully determined until you know what type of car you are purchasing.

Consider What Your Down Payment Will Be

The terms of your auto loan will determine how much you pay now and how much the auto loan costs overall. Remember that a low cost now may not mean low total costs for you in the big picture.

For example, most borrowers choose a low down payment because it’s easy to manage today. However, that choice increases the total cost of your auto loan and usually leaves you ‘upside-down’ (meaning you owe more on the vehicle than it’s worth) for years to come.

Consider Disability and Life Insurance

When you ask various lenders what they’ll offer you, you may find that you need insurance to get the best auto loans. And not just auto insurance but disability insurance and life insurance. Some lenders are concerned that something could happen to you and you wouldn’t be able to pay them back.

Having insurance might not be a requirement, however you should know all the details if you already are insured.

Shop Around for the Best Rate

You don’t have to get your auto loan through the dealership. Shop around for the best rate. This is simple but it is often overlooked. Check with local banks, credit unions and online financing services.

Avoid Prepayment Penalties

Things change in life and flexibility is important. Your auto loan should also be flexible. Find a lender that will allow you to make extra payments or pay off the loan entirely without any penalties. Be sure and read the fine print before agreeing to any loan.

Find the best deal on the auto insurance coverage you need. Visit us today for money-saving tips, information about cheap auto insurance quotes

The Fair Isaac Corp., the creator of the FICO credit score - recently unveiled a new scoring model for determining credit scores. It is being called FICO 08.

The Better Business Bureau of Mississippi offers the following information about FICO 08 and changes it contains can affect consumers.

FICO scores range from 300 to 850, with higher scores being better. They are based on consumer credit history and reveal the risk level on loan defaults. A good credit score is anything higher than 700.

“A low FICO score keep consumers from getting loans to buy a house or car,” said Bill Moak, president/CEO of the BBB of Mississippi.

“Today, many landlords, utility services and employers are now relying on these scores as well. This means that a bad score can keep someone from getting a good insurance rate, an apartment, or even a job.”

According to Fair Isaac, the new FICO 08 is more forgiving of minor slip-ups and will more accurately predict a borrower’s risk of defaulting on payment obligations.

Factors included in the FICO score are: financial history, indebtedness, length of credit history, and number of open lines of credit. The new FICO 08 changes the weight for these factors.

“Consumers may see their scores go down if they have multiple delinquent accounts. Their scores may go up if they have only one delinquent account and demonstrate successful repayment on other debts,” Moak said.

Due to the constant increase in Identity Theft, the BBB recommends that consumers check their credit report and score periodically to be sure that they accurately reflect their credit record.

With the nation´s rampant foreclosure rate being called the worst since the Great Depression and California´s foreclosure ranking the second highest in the country according to RealtyTrac.com, I am asked many questions regarding the trials of foreclosure. Not surprisingly many of these questions are on the subject of short sales.

Q: “…how long after a short sale before I can get financing?”

A: The short answer: 18-24 months.

Why?

Since a short sale is usually negotiated because of payment default or foreclosure proceedings an important issue to be addressed is your credit score (FICO). A short sale definitely harms your personal credit far less than any other foreclosure solution such as a Deed in Lieu but your home loan payments were at the very least behind even if the lender had not yet issued a Notice of Default.

Interest rates are FICO driven meaning that the higher your credit score the lower the interest rate you receive on financing of a home and the lower the payments will be.

Ideally you´ll want to raise your credit score to at least 620 and 680 or higher is better.

Tips to Help You Get There

Get a free copy of your credit report at annualcreditreport.com and scrutinize it for any errors or discrepancies. Contact the reporting creditor to find out how to correct any misinformation.

Make all payments, even your rent, cell phone, utilities, etc., on time. Lenders typically don´t want to see any late payments in the past 12-24 months so you have time to plan. Major credit lines such as those for your car loan are vital but when rebuilding credit (or in the case of no credit history) simple everyday payments can come into play.

Pay off any collection accounts. The account balances can often be negotiated down by contacting the creditor and a lower amount accepted as total payment on the account. A charged off account is also considered an open account so be sure that if you have any charge offs negotiate a settlement!

Lenders considering new loans won´t make a loan when there are open collection accounts.

Keep the balance of any credit card paid down. Credit cards can become voracious monsters very easily. Use caution here. You want to keep the balance on each credit card to 25-30% of the approved credit line. In other words, if your credit line is $5,000 your balance shouldn´t be more than $1,250-$1,500. This takes in the point of your borrowing power.

A couple of don´ts: 1) Don´t close unused credit card accounts as a quick solution to raise your credit score—there is no quick fix, 2) Don´t apply for new accounts you don´t need simply to increase you borrowing power.

Should you find yourself struggling you can contact the non-profit Consumer Credit Counseling Services (National Foundation for Credit Counseling) at 1-800-388-2227 or on the web at www.debtadvice.org

LATE SUMMER IS supposed to be the best time to buy a new car, but savvy shoppers may actually find the best deals well before Labor Day.

Incentives typically peak in July, according to Jesse Toprak, executive director of industry analysis at Edmunds.com. And with new car sales at their lowest level in over a decade, dealers are getting desperate to move the metal before the 2009 models hit showrooms.

Here are some tips to score a good deal:

Profit off the Credit Crunch
Sure, it’s tougher to get a loan these days. But car salesmen are now competing for buyers with good credit and some are even willing to break even on the financing just to make a sale, according to Jack Nerad, executive editorial director at Kelley Blue Book.

To help you land favorable terms, shop around online and get pre-approved for a loan first. Then, see if the model you want comes with any incentives, such as 0% financing. “It’s hard for a bank to beat that,” says Nerad.

Don’t Be an Incentives Sucker
Some of the biggest discounts this year are on midsize and large SUVs. But with fuel prices rising, these gas guzzlers won’t hold their value as well as smaller, more fuel-efficient models, says Tom Libby, an analyst with J.D. Power and Associates.

Another incentives trap: buying a car just before an all-new version comes out. Mercedes-Benz, for example, is offering 0.9% financing, plus $4,000 in manufacturer-to-dealer cash, on its E-Class sedan through the end of July. Once the redesigned model comes out this fall, however, this older version is likely to shed 10% to 15% of its value. “There’s always a reason something’s on sale,” says Toprak. Instead, buy a high-quality model in the middle of its life cycle (most models are redesigned every four years). The upfront cost will be higher, but so will the resale.

Be Flexible
Luxury car makers are loath to advertise discounts, fearing that doing so will damage their “brand equity.” But that doesn’t mean they don’t offer financial incentives to dealers to help them sell certain models. Ultimately, that’s money dealerships can pass on to customers in the form of savings.

Visit Edmunds.com or Kelley Blue Book’s kbb.com site to find out which models come with the biggest discounts in your area. For luxury brands, the best deals are usually tucked into leases, and if you’re willing to compromise on body style you can save a few extra bucks, too. BMW’s 328xi wagon isn’t as popular as its X3 crossover, though they’re basically the same vehicle. Lease the wagon and you can save $50 a month.

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