By Coral Beach
No doubt truckers’ DNA has a fair bit of DIY in it. After all, few other professions require a broader range of do-it-yourself skills than trucking - especially if you’re an independent owner-operator.
And while some of those skills involve the actual mechanics of that gargantuan investment that rumbles to life at the touch of your hand, there are other do-it-yourself skills that are just as crucial to your survival.
What is a good credit score?
Most lenders require a minimum credit score of 700 to underwrite a truck loan. Sometimes consumers with lower scores can secure loans, but the lower the credit score, the higher the interest rate.
How to read your credit report
The Consumers Union, the organization that publishes Consumer Reports magazine, has a guide that helps people review their credit reports for accuracy and correct mistakes if any are found. The guide is available at: consumersunion.org/issues/creditmatters.html.
Sure, you know the score when it comes to tire pressures and rpms, but do you know your credit score?
If anyone knows the score on credit scoring, it’s Margo Fries, manager of OOIDA’s Truck Finance Department. Every day she sees the impact and importance of credit from the perspective of the professional truckers she works with.
“Your life, believe it or not, can be run by credit, and that credit score plays a part in them saying yes and them saying no,” Fries said, explaining how lenders use credit scores not only when they determine who gets a loan, but also at what interest rate.
What sends credit scores up and down?
There are as many explanations for low credit scores as there are people who have them. Often there are extenuating circumstances that were either unforeseeable or uncontrollable that damage an individual’s credit score. Medical expenses, family emergencies and natural disasters are common denominators for many people who have credit in need of repair.
Regardless who or what contributed to your credit score dropping, there is only one person who can repair your credit. That person, according to OOIDA’s Fries, is named at the top of each and every credit report. That person is you.
Fries said it doesn’t matter if a person is trying to repair their credit record, establish a credit record for the first time, or maintain a good credit record, the solution is the same - self-discipline.
“Lenders want to see a track record of you making payments,” Fries said.
That track record is basically what a credit score is, and improving that record is a do-it-yourself project that requires few tools, but a fair amount of savvy.
How does a person build a credit history?
Ironically, one tool that can be most helpful in constructing a solid credit history can also cause a credit score to collapse. That tool is a credit card and when used with self discipline, it can be a foundation for four-star credit.
“They actually show lenders a track record of making payments,” Fries said. “It’s very important that we use credit cards and use them wisely.”
Fries said the key is to avoid charging up big balances on credit cards because of the high interest rates and difficulties in paying them off, which can include late or missed payments, which drop credit scores.
Another good tool to use when building your credit score is to get a small auto loan or furniture loan, which like credit cards can help establish your payment history and show other lenders that you will pay off your debts.
However, not every furniture store and used car lot reports to the credit bureaus. Fries suggests asking for documentation from retailers to show that they report to a credit bureau before entering into any purchase agreements.
“The buy-here-pay-here lots are easy to get credit with, but they don’t report to the bureaus,” Fries said, adding that such car loans are neither good for building new credit nor repairing damaged credit.
The OOIDA truck finance manager also cautioned truckers against falling for the urban myth that debit cards can help build good credit. Just because a debit card has a Visa or MasterCard logo doesn’t mean that it is a credit card.
Regardless of the logos, debit cards are merely a method of spending money from a bank account, unless they are specifically activated for other uses.
Another possible pitfall in the do-it-yourself world of credit building is excessive debt load.
Some consumers make the mistake of taking out too many loans at once when they are trying to establish a credit history.
Even if a person has the cash flow to make all of the payments - which can boost a credit score by showing bills are paid on time - too many little debts can make a person unattractive to the big lenders when it comes time to add truck financing to your debt load.
“You don’t want to get yourself into the situation where you can’t handle all the debt load you have,” Fries said. “If you’re a first-time truck buyer, don’t out and buy a brand-new truck that’s going to cost you $2,200 a month. You’re probably going to get in over your head.”
Another misconception many truckers have is that if they have a home loan they should be able to get a truck loan because a home loan shows stability and what lenders call “comparable credit.”
“What they mean by comparable credit is home loans can range anywhere from $25,000 on up to $500,000, and when these lenders are looking at a $50,000 or $100,000 truck they want to see that you have credit out there for that same amount as a home loan because a home loan is about the only other thing in your life that you’re going to buy for that large dollar amount,” Fries said.
But having a home loan does not guarantee a truck loan will be approved.
“Home loans can be given to credit scores at Fries said. “It is very hard to get truck loan approved if you have a credit score of 500.
“(In general,) truck loans are harder for two reasons. No. 1 it’s a commercial loan, it’s business use. Also, a truck can travel all 48 states. If, unfortunately, they do have to repossess the truck, they don’t know where they’re going to find that truck, and that scares them. A home loan is easier to get because that house isn’t going anywhere.”
Some truckers with less than perfect credit also mistakenly believe that a home equity loan is the best option for financing a first truck. Fries said it often comes down to pay now or pay later, but you will pay.
“I have had a couple of buyers say they did a home equity loan to get their first truck because they didn’t want to pay a high rate of interest,” Fries said.
“The bad thing is they come back the second time around for that second truck and the lender says, ‘Well, you don’t have any past truck credit.’ So they’re still going to charge a little bit higher rate of interest. Sometimes it’s best for the first-time truck buyer to pay a little bit higher interest rate - kind of pay your dues for the first three years - and then after that it’s usually pretty smooth sailing if you’ve paid that first loan as agreed.”
Tips for repairing credit
The first step to repairing bad credit is obtaining a copy of the credit reports that lenders use to determine loan eligibility and interest rates.
Federal law now requires that credit bureaus provide U.S. residents with copies of their credit reports free of charge (see accompanying article). However, the Fair Credit Reporting Act does not require the bureaus to provide credit scores free of charge.
The bureaus charge a fee - usually less than $10 - to provide consumers with their credit scores.
Upon receiving their credit reports, truckers and other consumers should first examine them for any factual errors.
Fries said it is important to verify that personal information is correct, such as full name and Social Security number. She cautioned truckers to check their reports for any loans or debts that they did not actually incur.
Sometimes credit information from a person with a similar name may appear on your credit report. If that happens, or if any of the information on the report is incorrect, Fries said a call to the credit bureau will usually resolve the problem. Sometimes the bureau will ask for copies of supporting documentation.
If all of the information on a credit report is correct and the credit score is still below 700, it is time to take action. The most common problems that reduce credit scores are poor payment histories - which can be remedied by simply making sure you pay all of your bills on time - and accounts that have been sent to collection agencies.
Fries said accounts that are sent to collection present two problems: They bring your credit score down because they show you did not pay as agreed, and they bring your credit score down a second time because not only does the initial lender list you for non-payment, the collection agency does too.
And it doesn’t matter how small the outstanding debt is, if it goes to collection, your credit score goes down.
“I’ve seen a lot of cases where people have collections out there of $26 or $100,” Fries said. “You really need to get those paid off. Those little collections will bring down your score. It will help you in the long run (to pay them off) because it’s going to get you a lower interest rate on new loans you apply for.
Fries said that it is often better to pay off loans that have gone to collection one at a time, rather than splitting your cash flow to pay a bit on each of them each month. Each time one is completely paid off, it is removed from your credit report, which helps your credit score.
She also suggested contacting the original lender to set up a payment plan for a debt that has gone to collection. Sometimes they will take the account back from the collection agency, which means the duplicate entry on your credit report that the collection agency filed will be removed.
Maintaining good credit
Professional truckers know the importance of regular maintenance, but many do not realize that their credit needs regular attention, just like their rig does.
One common problem that can creep up on a person is having too many open credit accounts. It can damage good credit and slow down the process of repairing bad credit. Fries said even if a person doesn’t have any balances due on open accounts, the fact that the consumer could run up debts on the open accounts makes them less attractive to lenders.
Even if a person cuts up credit cards that have zero balances on them, the accounts remain open and are listed on credit reports. The only way a consumer can get such open accounts removed from a credit report is to contact the credit card company and close the account.
Another tip for maintaining as high a credit score as possible is to limit the number of lenders that you allow to access your credit report. Although a consumer can request and receive copies of their own credit reports without decreasing their credit score, that is not the case when a lender accesses your records.
“Every time a (potential creditor) pulls an inquiry on you, 3 points come off of your credit score,” Fries said.
“So if you go car shopping one day and you visit five dealerships and each (checks) your credit, that’s 15 points off of your credit score. If you started out with a score of 710, you’re now at 695. Since that 700 number seems to be a magical number, you might have just kicked yourself out of that A-tier credit or maybe out of getting a loan at all.”
Even though credit points are supposed to be restored within 12 months, Fries said there is an easy way to avoid losing them because of credit inquiries.
“You have to be very choosy in who you allow to check your credit,” she said.
“As a consumer you should know where your credit score stands so if you’re at a car dealership or a truck dealership and they ask you how your credit is you should know yourself where your credit score comes in. That sales person or finance manager should be able to tell you what kind of financing they can offer you based on that credit score and that way they don’t have to pull your report each time.”
Fries stressed that repairing or establishing credit isn’t a complicated matter. But many find that the self-discipline required makes the task one of the most difficult do-it-yourself projects they ever tackle.
“One of the first things to do is to make sure you know what size of payments you can afford,” Fries said.
“That means you have to calculate a budget. If truckers need help with that, they can call me and I’ll help them figure it out.”
Margo Fries may be reached by sending e-mail to firstname.lastname@example.org or by calling 1-800-444-5791.
Free credit reports available in all 50 states
By Land Line staff
Marking the final phase of the process, residents of 14 states and the District of Columbia can now obtain free copies of their credit reports in accordance with the Fair Credit Reporting Act.
Staff in the OOIDA Business Services Department recommend that truckers check their credit reports every year to make sure all of the information is correct. Incorrect information could adversely affect your credit - and therefore your business.
The free credit reports have been phased in across the country by region this year. Along with the final 14 states and Washington, DC, residents in U.S. territories can now obtain the free reports.
Residents in the final 14 states became eligible for the free reports as of Sept. 1. Those states are: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania,
Rhode Island, Vermont, Virginia and West Virginia.
In addition to the federally mandated free credit reports, truckers can also obtain a copy of their USIS/DAC reports under the Fair Credit Reporting Act.
People who want to get a copy of their credit report can do it three ways:
- Order it on the Internet by visiting annualcreditreport.com;
- Call 1-877-322-8228; or
- Complete an Annual Credit Report Request Form available through the Federal Trade Commission and mail it to:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281.
The FTC says that when you order, you need to provide your name, address, Social Security number and date of birth. To verify your identity, you may need to provide some information that only you would know, like the amount of your monthly mortgage payment.<