Credit / Purchasing 101 - for the NOT wealthy

Discussion in 'SRT Hellcat Purchasing' started by RadCat, Mar 4, 2015.

  1. RadCat

    RadCat Left Shark

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    After reading the 3 or so pages in this thread:
    what is everyone monthly payments SRT Hellcat Forum

    I wrote the novel you see below. But decided to give it its own thread so it would be easier to find and maybe help a few other people out. It started out as just a couple of small paragraphs, but just kept coming so I hope I can help out a few people looking for information. So here goes:



    If you are comfortable financially, purchasing a HC is a non-issue financially for you, then skip this post I've spent over an hour writing and go on about your merry way with whoever posted after me (probably 5 people posted while I was writing this anyway).


    For the rest of you, where you've never purchased a car this expensive, I've been there...wanting a car or other expensive item that was beyond my means. I hope this info helps to turn that around for you or makes it a little easier...maybe educates you a little, maybe helps you improve your credit score, gets you better percentage rates, saves you money, etc.

    OK, for those of your who aren't bazillionaires already, have wealthy parents, have most of your bills paid off and make more than $100k/yr or own your own successful business YET, here's credit school 101 (or basic auto finance school 101)...at least the way a mortgage lady taught me several years ago (well the credit card piece I'll discuss below). Here's your free course, but feel free to send me Hellcat swag for the years of knowledge and lots of $$$$ I've spent to learn this, but I'm about to impart on you for free:

    As far as your HC payment, that's all dependent on a case by case basis, every single person is different. Obviously if you make $500k per year and have no real debt, can buy your HC with a personal check, then you don't need this info so skip to the next post. The main questionable variable is your credit rating. The rest is just math:
    - How much do you make?
    - How much do you spend (income to debt ratio) on a monthly basis? This is mainly your hard and fast bills that will show up on your credit reports (loans and credit accounts). They don't care about gas, groceries, smokes, booze, bingo, hookers, firetrucks, banjo's, cat pajamas or whatever else you don't have to have a credit line for. Mainly credit accounts like credit cards, auto loans, mortgages, personal loans, business loans, etc. The things that get reported to a credit bureau...that's what they are going to base 90% of their decision on. Medical bills will also show up if you have any that are unpaid/written off, went to collections or whatever.

    I forced myself to get 2 credit cards several years ago (mortgage lady advice when I wanted to buy a log cabin 3x what I could afford at the time). First 2 I ever had. I have always paid in cash or with a personal check or debit card, which is the way my Daddy raised me. If I couldn't pay for it with cash, then I couldn't afford it and didn't need it....which sucks for your credit rating unfortunately. And no matter what anyone tells you, credit DOES matter. It affects many more things than just getting a loan. It affects your auto insurance, can affect your health insurance and today can affect your ability to get a job. And if you have kids, TEACH them this valuable lesson when they are in their late teens. It's too bad high schools don't teach about credit and real life finances...

    - Make sure whatever credit cards you use, they aren't maxed out.
    - I have a reminder on my computer that tells me once a month to go use these 2 credit cards (before they generate their monthly statement).
    - I have a reminder on my computer that tells me once a month to go pay the balances down to $10, BEFORE the payment is due.
    - I normally spend $20 dollars a month on each...sometimes even as much as a tank of gas in my diesel 4x4, but normally small amounts like $20. Main thing is just to USE them so they show as 'active' accounts, that aren't spent to the max every month. Do NOT pay the balance down to $0 every month, they will show as 'inactive' which doesn't help your credit score at all. I know this step sounds simple, but it can be a pain...to plan to spend $20 every single month on each card. Just $20. $20 doesn't buy much today. Doesn't have to be exactly $20 but it should be a small amount so that when it's time to pay them down, it's a non-issue. If you make it less than $20, the credit card company will roll it into the 'minimum payment due' then your balance will be zeo...which is not a good thing.
    - The main point is that I pay both down to only a $10 balance, before the bill is due, every....single...month. This $10 carryover balance is just enough activity to show the accounts are 'active' and maintain a low balance.
    - It also shows that you use a very small percentage of your available balance.
    - This shows the credit bureaus that you have restraint, that you can have thousands of dollars of available credit...but consistently only use a fraction of it.
    - If you have really high credit limits (and if you do it the way I'm saying here, they will raise your limits automatically because you are a dependable customer), call the credit card companies and have the limits reduced...so that you don't have TOO MUCH available credit. The banks will look at it as If you had to use it, say in a pinch...it might put you in a financial hole that you can't get out of, and that is a risk to a new lender. Face it, this is only to build your score. If you are only spending $20-100 per month, why do you need a $5000 balance?

    For a great auto loan calculator, go here:
    Car Loan Calculator

    It even accounts for interest rate, length of loan, down payments, taxes, trade ins, fees, etc. It's pretty complete. There are so many out there on the interwebs that only calculate the total amount, length and % rate. They don't let you enter your down payment, or consider your states taxes, tags and fees (and on this car can be several thousand dollars depending on your state). Anyone here who has ever built a hot rod (or just a souped up motor) will know that even after you've crossed your T's and dotted your I's for every single part, gasket, bolt that you can think of, it's going to cost at LEAST double what you planned. So find a very thorough auto loan calculator.

    If you have great credit, you can get great rates like 2.99% - 4%. A low interest rate not only makes your monthly payment much lower, it reduces the total cost of your loan by a substantial amount. If you don't have great credit, then pull all 3 of your FICO scores and call a local bank to get them to give you an estimate. YOu will have to pay to get your FICO scores. You can get your 3 credit reports once a year for free from Annual Credit Report.com - Home Page but that doesn't include your FICO scores. You still need to get them every year, review them, make sure the info is accurate and you haven't been a victim of credit fraud. Your possible banking lender won't be able to give you a definite quote on your interest rate until they can pull your credit. But if you have current FICO scores (not just 'credit scores' that all the "free" credit sites advertise (these are NOT FICO scores, just some calculation that that particular site uses...NOT what the banks use)...FICO scores is what you need to know), they can at least put you in the ball park on a percentage rate. Some lenders use their own formulas but FICO's are pretty much the standard scores that lenders use. Your FICO scores will be different at all 3 credit bureaus (TransUnion, Experian and Equifax) because all the info they collect won't match 100%. That's a whole other course, how to get them to match, get false info removed, current info (address, employer, etc.) added.

    Also, when shopping for a lender (after you have your FICO scores from all 3 bureaus), ask them which bureaus they request your credit from (pick a lender that pulls your FICO from the bureau that has given you the highest score). That's a simple advantage for you.

    Credit unions usually have better % rates and will loan longer and often times have a higher loan value (will loan more) for whatever you are wanting to buy. Just make sure you pick one (credit union) that reports to all 3 credit bureaus, not just one or two of them...or 5 years of making every payment early will only help 1/3 of your credit score...sucks when you only find that out 3 years later that they only reported to one of the 3. So do some homework and research first, it will pay off in the long run. It only takes a few phone calls and questions.

    Do you have a trade in? Would you rather sell it outright to make a couple thousand more? Some banks won't let you refinance for 3-6 months after your initial loan. Think about this. When you apply for your initial loan, it's going to ding your credit scores, knock them down 5-20 points (which could mean a higher % rate on your loan). Lets say you have a car to trade in that you have paid off, or aren't upside down in (so a decent addition to your down payment). You take it to the dealer to pickup your Hellcat...say you found one 5 states away and drove it there to trade in. They know they have you by the short and curly's so they will lowball you because you are there, chomping at the bit to take your new HC home and if you don't take their lowball offer, then you have to arrange to get that second car all the way back home...and having one trailered can cost you another $500-1200, so you are more than likely to cave and take their crappy offer. Higher payment for you, more cash in the dealers pocket.

    If you make some phone calls, do some research, beforehand, you can find a lender (bank, credit union, FCA, whatever) that will allow you to get your initial loan for the HC, minus your down payment (cash), then get your car sold locally for more money and apply it to your original loan (called a loan modification) without having to go through the whole loan 'refinance' process..which is a second loan...another ding on your credit score (even worse % point loan the second time around). Like I said, some lending institutions have a limit, they won't give you a second loan (refinance), for 3-6-12 months after the original one...so if you can't afford to make that full payment, the cost of not adding your trade-in or car you want to sell (much higher than you had originally planned on (maybe from using one of those simple loan calculators that made you believe your payment would be $200 less per month than what it actually turned out to be). Now since your trade-in didn't pan out, you may be paying %30-100 more of a monthly payment than you had counted on. Those are the 'gotcha's that really get you and either really mess up your credit and/or get a car repossessed.

    So shop around. Find a quality lender that will give you a good % rate on your loan, let you sell your car outright (so make more on it), then allow you to do a 'loan modification' instead of a refinance, and that entire amount (the sale of your trade-in car to a private seller) will go towards the outstanding balance. They won't have a deadline, you can market your car on Craigslist, Autotrader, Cars.com or just 'for sale' signs on the window while it's parked in a high traffic area. Whenever you do sell it, take that to the bank and get your payment dropped right then

    Besides this, hopefully you have good/decent credit, have put some money back for a down payment and maybe have one of your current cars paid off. All of this stacks in your favor. More money down, less risk to the lender, sometimes better rates.

    Try not to get a loan length any longer than you just absolutely have to have. If you can afford the 60 month payment, don't choose a 72 or 84 month. You want your car to still have some value by the time you pay it off, or decide to upgrade again in 5 years to the 2020 Hellcat II with 1400hp.

    I worked on my credit and finances for many years, learned most of these lessons the hard way.

    Right now, I have a nice chunk of change in the bank. Sold an extra 4x4 truck (old hunting rig) (paid off) that I don't use anymore. Sold a custom Harley (paid off) that I never seem to have time to ride much anymore. An SRT8 Charger paid off and currently for sale, plus a little extra here and there depending on how many more weeks I have to wait for a VIN and delivery of my car. I put money in the bank every payday. I only have one other loan and that's an auto loan which is almost %50 percent paid off. No other 'bills' as far as they are concerned. I have looked around my shop and found many things that I no longer use and still have some value...craigslist, spring cleaning.

    When there's a will, there's a way. There's always a way to come up with some extra scratch when you really want something bad enough. So I will only finance less than half of my HC (probably closer to 1/3), so it's over halfway paid off when I get into it the first time. But I have been putting my ducks in a row, putting money back, planning on this since last summer. I'm ready to pull the trigger anytime I either get my car delivered, or find the (sort of) rare combo that I want on a lot. It's a nice feeling. It gives you a lot more power in the negotiations and presents MUCH less stress...and when you aren't wound so tight, aren't stressed, you can negotiate much better...you know you have the power.

    When you call these dealers that are asking for $10k over MSRP and you tell them "I've got $40k cash", you can actually feel them make that evil laugh under their breath (in their brain) and wring their hands (like Dr Evil) on the other end of the phone and know that you have more bargaining power...they will come down...they LOVE cash.

    So use your head. Do your homework. Get your ducks in a row and if they are not, I have just laid out a game plan for you to do so.

    Best of luck! Hope you all get the car (or whatever) you have been dreaming of!!!
     
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  2. Thebossaudio

    Thebossaudio Silver Member

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    I just paid off 2 of my credit cards so that means I have to use 20$ ONLY EVERY MONEY but one questions my minimum payment are 35 so how my 20 dollars balance will show
     
  3. Brett M

    Brett M Silver Member

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    Credit will always show an outstanding balance. Leaving a small balance 1 month will show regardless of minimum due. Paying off small balance prior to next month credit reporting period will boost your score. Credit works by using it and showing track record of paying balances off
     
  4. Dubya

    Dubya Silver Member

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    Just my personal experience but my credit rating hovered around 800 for a few years. No negative info, late payments etc. but my score just wouldn't move. It wasn't until I increased the limits on all my credit cards (no balances) did my score start climbing again.

    Also, compare credit cards and their reward programs and signing bonuses. I pay for everything with my cards and end up making about 2-3k a year in gift cards, cash back, airline tickets, free hotel rooms, free car rental. Thats on top of the perks the cards offer...free car rental insurance, free checked bag, and no foreign transaction fees just to name a few. It's real money, and it's free if you can manage it properly. Building your credit with credit cards can be fun and rewarding but it is a methodical process.

    Thanks for posting this RadCat. It's a good read.
     
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  5. B5 Blue

    B5 Blue Platinum Member

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    RadCat,

    Wonderful article and thanks for posting it. One of the things I'm missing is if someone spent say $50 a month on each card and you state pay it down BEFORE the statement to $10 so it shows activity each month is why? If one is spending whatever amount each month and paying it off each month that should be activity correct? This is what I do every month of course it's for thousands not double digit.

    Now since I have no job income being retired what happens then for a loan? The reason for getting a loan let say at 4% is that you are using other peoples money and not depleting you own and hoping that you make more than 4% on your investments.

    For anyone looking for a credit card that has good credit (over 700) I use Nerdwallet. They had the Citi Double Cash card on there BEFORE I ever started seeing commercials for it. The reward on this card is the best I've found 1% on purchases and 1% when you pay for it. So if you are like me and pay the balance off monthly this is 2% off EVERYTHING that you buy including healthcare.

    Thanks again to all who responded with ideas on here.
     
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  6. SRT_HC_707

    SRT_HC_707 SRT_HC_707 Staff Member

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    Smart man... Good advice!
     
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  7. Nycsrt

    Nycsrt BANNED

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    We can just become pirates and go gold
    Hunting
     
  8. DrBuick

    DrBuick Gold Member

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    Nice write up. Thank you.

    I tell everyone you HAVE to have credit. I don't care how much money you have.
     
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  9. Catless

    Catless Silver Member

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    You do not have to carry a balance on credit cards or have outstanding loans to have a great credit rating. I'm sure the credit card and loan companies want every one to believe this but it is simply not true.
     
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  10. SRT_HC_707

    SRT_HC_707 SRT_HC_707 Staff Member

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    Another strategy is to rob a 7-11 each month. You only want enough for the payment. LOL. I shouldn't have to say this but I'M ONLY KIDDING. Don't rob anyone.
     
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  11. William Shookman III

    William Shookman III Hellcat Member

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    Very great advise and exactly what people need to know. Parents especially need to teach their kids within this more complex, technological world. I have been fortunate enough to have been taught most of this info from my parents, but I still learned a few more things. Thank you for taking the initiative to pass along this info so that we, like my dad always says, can "learn at his [your] expense." (Meaning that it is important to teach others what you have learned/experienced, whether the hard way or not.)
     
  12. Puffy

    Puffy Gold Member

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    My score hit 800 a few months ago. My wife opened a couple of accounts for me, Macys and Best Buy, to go along with my one credit card and my score took off. Your credit ratio and no late payments play a huge roll. I had USAA and my credit union bidding for my loan. Started at 3.99 and USAA won with a 2.25.
     
  13. JBS$

    JBS$ Silver Member

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    Caring a $10 balance forward on most credit cards will allow them to charge interest on your current purchases. Be sure that you understand the term and conditions of your card before adopting this practice.
     
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  14. Carnage

    Carnage SRT Hellcat Supercharged Moderator Staff Member Hellcat Car Club Gold Supporting Member HCC Charter Member

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    Awesome info RC!!

    I wanted to just add for everyone else in terms of percentage to keep the credit card balances to no more than about 20% and that mortgage loans are 4 star credit ratings, car loans are 3 stars, credit cards are 2 stars and retail store credit cards and gas cards are 1 star ratings.
     
  15. B5 Blue

    B5 Blue Platinum Member

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    Balance 20% of each credit card or all available credit cards?
     

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