Question: I’m planning to buy a truck sometime in the future, but my credit is questionable. I don’t want to build up my hopes if there’s no chance I’ll get the financing I need. Can you tell me some things lenders would be looking for when they check me out?
Answer: You are being smart to plan ahead because it gives you time to contact credit-reporting bureaus for a copy of your report so you can check it for errors and work to make any improvements within your control.
The three major national credit bureaus are:
Your credit report will indicate information such as your place of employment; where you live; legal actions and bankruptcies; and your bill-payment history.
Potential lenders will look for any delinquent accounts on your record along with the length of the delinquency. A late payment or two may not cause the lender to reject your application, but it will help if you send a letter of explanation to the credit-reporting bureau detailing the circumstances. Ask them to attach the letter to your file so lenders can consider it when they view your report.
The number and balances of open accounts will also be taken into consideration by lenders. Even if you’ve always paid on time, too much credit balance when compared with your income could cause a potential lender some concern. Particularly if you’ve opened numerous accounts within the past year, lenders could view this in a negative light. It’s always a good practice to keep your credit spending under control, especially if you have plans to obtain financing for a large expenditure such as a truck.
It may surprise you to know potential lenders will be checking to see the number of inquiries on your credit report. If you have applied for numerous loans within the past 12 months, you might be denied credit on this basis. Resist applying for every credit card offer that arrives in your mailbox because you may be disappointed when it comes time to get a loan for something you really want or need.
In reviewing your report, you should look for any unauthorized inquiries so you can ask the credit-reporting bureau to remove them. Keep in mind only those with a legitimate business need can get a copy of your report, and most need your permission to do so; however, there are some exceptions, such as a creditor who has a judgment against you or the IRS if you haven’t paid your taxes.
Potential lenders will be also looking for past bankruptcies and collection actions. This information can stay on your report for a number of years (10 years for bankruptcy, and seven years for most other negative information). Although it’s possible the impact of such information on future credit decisions will lessen as time passes, lenders will still consider it as long as it remains on your report.
While you are searching for a truck to purchase, you should keep in mind there are many questionable sources waiting to prey on potential buyers who may have poor or borderline credit histories. These dealers are the ones you’ll see in advertisements who claim they will finance anyone regardless of past credit problems. Your “caution flag” should come up if you decide to shop for a truck at any of these sources because you could fall into a trap that is nearly impossible to overcome.
These companies make their money by charging way too much for the equipment in the first place, and then adding insult to injury by stabbing you with an extremely high interest rate to boot.
The pride of ownership diminishes quickly when the truck you just financed for $75,000 with 18 percent interest is totaled in an accident on the way home from the dealership, and the insurance company wants to settle with you for $35,000 because that’s the actual market value. It happens more often than you think.
By all means, take the time to consider the possible consequences before you become entangled in market schemes designed to benefit only the dealer. You should definitely consider whether it would be more beneficial to spend time trying to improve your credit record before you make your truck purchase, or to spend your resources afterward trying to recover from being victimized by a seller’s marketing ploy.
Finally, since your employment history will be also a consideration, try to avoid switching jobs or lease companies too often. Your length of experience and your ability to prove you are stable may be a determining factor in obtaining credit for a truck.
To summarize, check your report, clean up any negatives you can, avoid overpricing and excessive interest rate traps, and do your best to prove you are both stable and financially responsible. Good luck!
If you have questions you’d like answered, please e-mail them to firstname.lastname@example.org or send them to me at PO Box 1000, Grain Valley, MO 64029. Although we won’t be able to publish all questions in Land Line, you will receive a response.