What Can You Afford?
What's Your Credit Rating?
Improve Your Credit Score

How to Estimate What Monthly Payment You Can Afford

Financial experts recommend that your monthly car payment be 20 percent or less of your after-tax monthly income. If you have two cars, the total monthly payments for both should still be less than 20 percent of your monthly income pay after taxes are deducted.

Remember that the price of the car you can afford may be different depending on how new it is. Loans for newer cars often have lower interest rates and longer terms. You may find that you can afford the monthly payments for a new car or a car that is just one year old more easily than for an older used car. Loan rates and terms are all pre-calculated on the website. To see a listing of new and used cars at local dealers that fit your budget, use the AutoFinder section to enter your "Down Payment" and a "Payment Limit" range. The Down Payment is the money you have saved plus money you plan to receive from selling or trading in your current car.

If your current financial circumstances require you to stretch your car-buying dollar, look at different types of vehicles. Instead of a luxury sedan, perhaps look at a quality family sedan costing thousands of dollars less. Some low-priced models are excellent values. Maybe you can make your current car last long enough to save a larger down payment to make up the difference between the loan your monthly payment will buy and the purchase price of the vehicle you want.

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How to Find Out about your Credit Report and Credit Score

The amount of money you can borrow and your interest rate depends on your income, your debts, and your credit history. Your credit history is a record of your payments on outstanding loans, lines of credit and credit cards. Under Federal law, you may get a free copy of your credit history once a year: Free Annual Credit Report. You can also get your credit report by calling (877) 322-8228.

Your credit history is rolled into a Credit Score, which provides a short hand for lenders to assess their risk to loan you money. A loan specialist can search your credit report and tell you what your credit score is. You can also get online access to your credit score and other information at numerous websites such as: Find Your Credit Score

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Improve Your Credit Score

A low credit score will cost you a lot of money by raising your financing costs. It is a good idea to increase your credit score before making any large purchases, and to increase the score by as much as possible. It may cost some money to get a copy of your credit report and credit score, but you will make it back many times over if you fix something wrong or use the information provided to increase your credit score.

On a car loan of $20,000 over the course of five years, a person with bad credit will pay several thousand dollars more than a person with good credit. The key is to get credit only when you need it (unless you're trying to establish your first credit) and then use it carefully, make your payments on time, and keep your balances low.

Here are some steps to repair your credit:

• Get your credit score and your credit report. You need this key information, to know what to fix and how to fix it. Your credit score is determined by this breakdown:
  
  

  35% Payment history
  30% Outstanding debt
  15% Length of your credit history
  10% Recent inquiries on your credit report
  10% Types of credit in use

• No points are deducted for checking your own credit report. You will lose some points if there a number of credit inquiries over time for applications such as credit cards, auto loans, department store credit cards, etc. If you are shopping for a car or mortgage, try and keep all your inquiries within two weeks since credit scoring companies will treat all these as one inquiry. Some online sites provide a Credit Analyzer to allow you to experiment with the effects of consolidating accounts, closing accounts, paying down accounts, etc.


• Make sure everything on your credit report is right. If you see something wrong, dispute it with the agency. You may dispute it by way of phone, letter, online or via email. By law, the creditor must prove the accuracy of what you are disputing within 30 days. If they don't, it simply gets removed from your report. If you have evidence that something is wrong, submit the evidence using USPS registered mail to the credit agency and they will have to remove the inaccurate data right away or prove that it's accurate. Even if you don't remember if it's accurate, dispute it anyway since the creditor will have to prove that the information is accurate.



• If you have any accounts in collections or that are very past due on your credit report, you need to get them removed to really increase your credit score. If disputing these items has not worked, you should contact the creditor or collection agency directly. One approach is to offer to pay 50% of your debt, but only if they remove your bad credit history, and not just mark it paid. Make sure you get this in writing. Many agencies will take the opportunity to collect the bad debt and fix your credit report. Removing these items will dramatically increase your credit score since the adverse item will be completely removed from your report. If you have already paid off adverse items, dispute it with the agency again since it will be their burden to prove it, and they usually won’t bother disputing since it's already been paid off.



• Your credit score will be higher if your outstanding debt divided by your available credit limit is low. For example, it looks better if you owe $2,000 on an account with a $25,000 credit limit than if you owe $2,000 on an account with a $5,000 credit limit. If your credit needs some quick repair, and you have extra cash, pay down as much of your debt as possible. The flip side is to call existing credit card accounts and ask them to increase your limit, though you won't actually use it. Do not open additional credit card accounts to increase this ratio, since that may hurt your credit score.



• If you are carrying debt, try to keep the ratio of debt to available credit limits at around 40% with about four cards for the best credit score. Don't cancel cards if it will put you below this ratio, and if you have to cancel cards - make sure you only cancel ones with less than one year of history.



• Another way to help your score is by spreading your debt to different cards. Although you may pay more interest, your score will improve since no one card will be close to its limit. For example, if you have a $20,000 limit on one card with $18,000 of debt, and have another card with a $15,000 limit but with $2,000 of debt, it is better to move $8,000 of debt from the higher card to the lower card. By doing this you will lower your ratio of debt to credit line, helping your score even though you haven't paid anything down.



• If you have no debt and have had no credit history within two years, go get some! Even though you don't need to repair your credit, you need to create some credit history. This may sound strange, but it works very well since it shows you can borrow and pay back large amounts of cash. Begin responsibly using a credit card for as much as possible and paying it back in full every month. Or take out one of those promotional 0% loans from one of your credit cards, put the cash into an account, and pay it back slowly (but before the 0% interest rate expires -- and don't spend it!). You will notice your scores dramatically improve after you have paid back the debt. This will also create a credit history for you, and it's never too late to start building your credit.



• If you have a partner/spouse or relative with good credit, have them add you to their credit card. This works very well since you will get credit for their payment of bills, and this will create a more positive credit history for you.



• Pay your bills on time by having them automatically deducted from your bank account or paid online before they are due. Being consistently late with payments is the easiest way to lower your score. The easiest way to keep your credit improving month after month is to pay your credit card bills on time or early! Even if you can only swing the minimum payment, get the payment there before the due date.

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