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Last year, Americans drove their vehicles well over 70 million trips around the world.
Credit: Important to the vehicle buying process.
Having good credit can really take you places.
Understanding credit. 1
Using credit. 2
Establishing credit. 3
Deciding who gets credit. 4
Maintaining credit. 5
Protecting credit. 6
Affording credit. 7
Budgeting for credit. 8
Examining your credit report. 9
Reviewing your credit score. 10
Lending differences. 11
Buying vs. leasing. 12
Buying a vehicle with credit. 13
Knowing your rights. 14
Signing the contract. 15
Summing up credit. 16
Learning the language: contract terms. 17-18
Learning the language: credit terms. 19-20
Setting goals. 21
Table of Contents.
Understanding credit.Obtaining a new vehicle is one of life’s most exciting experiences.
While paying cash for a new vehicle is certainly an option, having good
credit to finance or lease a new vehicle makes doing so one of life’s
most gratifying experiences.
60% of intersection crashes could be avoided if drivers had another half-second to react.
Imagine what a few minutes of reading this brochure can do for your credit.
Over the next few pages, we’ll help you first understand how credit is used,
and then how it plays a significant role in purchasing a vehicle. We’ll also
provide some valuable information to help you make informed decisions as
you engage in credit transactions. Even if you’re already credit savvy, or
simply need to improve your credit, this guide can still help you. There are
tips on how to help protect your credit from identity theft on page 6. There
are also additional credit resources on page 16.
1
In most cases, to borrow money you need to have good credit. Having good credit simply means you’ve repaid what
you’ve borrowed according to the agreement between you and your lender. If you have bad or damaged credit, you may
still qualify to borrow, though at a higher rate. The purpose of this guide is to provide you with credit information that helps
you understand your financial commitments so they don’t detract from the excitement of acquiring a new vehicle. Approaching
credit and financing with the same care and thought as you would put into selecting a vehicle will make driving it that much
more satisfying.
Using credit.Having credit is a great convenience. With good credit you can buy large items, such as homes and
vehicles, without spending years saving up cash for the entire purchase price.
Generally, credit should be used only in situations where the useful life of your purchase extends for the
entire term. For example, compare a vacation with a vehicle. An
essential tool in today’s world, a vehicle has long-term benefits.
It provides daily transportation to work, school and shopping
throughout the vehicle’s entire life. A vacation might be great fun
while it lasts, but it only offers short-term benefits—use credit
and you may be paying for it long after its benefits have worn off.
In cases of emergency, credit can make the difference between
comfort and discomfort. For example, credit could be used in
case your home’s air conditioner needs to be replaced on a
100-degree day.
Credit, then, is best used for purchases with long-term benefits,
like vehicles, homes or emergencies, and is less suitable for
purchases with short-term benefits, like entertainment.2
Establishing credit.Establishing credit is an important first step in financing or leasing a vehicle. If you have
no credit history and have difficulty obtaining credit, one way to obtain credit is to have a
co-signer included on your credit application. Please keep in mind, however, the co-signer
is legally obligated to make any and all payments that you cannot.
If you apply with a co-signer,
the lender also considers
the co-signer’s credit. If your
co-signer has good credit, it’s
likely you’ll both be approved.
Once approved, make payments
on time to keep up your end of
the agreement. If you do this,
you will start to build a favorable
credit rating for yourself in
no time.
Another way to establish credit is to obtain a “secured” credit card. With a secured
credit card, you deposit funds into a bank account equal to the card’s credit limit. These
funds provide security for the credit card issuer, thus allowing you the opportunity to
establish a good credit rating.
3
Deciding who gets credit.Lenders, such as banks and credit card and vehicle finance companies, generally consider the
following factors to determine if you qualify for credit: income, level of education, how long
you’ve lived at your present address, assets, checking and savings account balances, your
promptness in paying bills, length of employment, and how much you owe. These factors fit
into three categories, known as the Three Cs of Credit: character, capacity, and collateral or
capital. This information comes from both your credit application and your credit report.
Character—Creditors evaluate your character through objective factors such as length
of residency and employment, and also by examining your existing credit relationships with
credit cards, bank loans, mortgages, etc.
4
Capacity—The amount of debt you
can realistically repay given your income.
Lenders look at your living expenses,
current debts and the additional payments
that the proposed new obligation
would require.
Collateral or Capital—The security,
or investment, that supports the credit
obligation. Lenders, in some instances,
want to know the current available assets of
the borrower, such as real estate, savings or
investments, that could be used to repay
debt if income becomes unavailable.
Maintaining credit.Once you have established credit, it is important to build a
favorable credit rating. If you are building your credit rating
with a credit card, use it conservatively so you can be sure
to make all your payments easily and on time.
Keep in mind that careless use of credit cards,
secured or unsecured, is how some consumers
get into trouble when using credit. It’s hard to
resist the allure of buying now and paying later.
When using a credit card, it’s important to
remember to completely understand the terms
(annual percentage rate [APR], credit limit,
repayment schedule, etc.), or you could quickly
get in over your head and put your future credit
in jeopardy.
If something happens and you are unable to make your
payment before the due date, contact your lender to
help minimize the risk of harming your credit. Most
lenders understand, and will work with you to help find
a solution.
A serious mistake some borrowers make when problems
arise is to avoid their lender. Attempting to evade
responsibility for the debt may force lenders to take
legal action in order to protect their interests.
5
Protecting credit.
Ways to minimize your risk of being victimized:n Don’t use the same passwords or PINs for all of your credit cards and bank accounts n Don’t leave mail in your mailbox overnight n Shred unwanted documents that contain your personal information n Obtain and review a free copy of your credit report annually n Do not give out your Social Security number unless absolutely necessary
Ways an identity thief can gain access to your personal information:n Stealing mail, wallets and purses containing identification n Fraudulently posing as a landlord or employer n E-mail and phone scams n Hacking into electronic files
What to do if you have been victimized:n Contact the three major credit bureaus (please refer to page 9 for list) and place a fraud alert on your credit reports n Notify your creditors n Close the accounts you feel have been tampered with n File a report with your local police department n Contact the Federal Trade Commission (FTC) at consumer.gov/idtheft or (877) 438-4338
Every 79 seconds, a thief steals someone’s identity.
Learn how to protect yours in about two.
6
1
2
3
Affording credit.There are two steps you should take before financing a large item,
such as a vehicle, to ensure that you are using credit wisely:
The calculations on the following
page can help you determine if
you can take on a new payment. If
your Total Income is greater than
your Total Expenses, the debt
being considered is affordable.
If your expenses exceed your
income, and you can’t make the
payment without cutting into your
savings or emergency funds, you
should reconsider the amount
being borrowed.
n Prior to purchasing, it is important to research financing options, rates and terms. In some cases, you may be able to negotiate rates and other aspects of the transaction
n Calculate how much monthly cash you have available to make the payments generated by existing obligations and the additional obligations created by new purchases
7
8
Fixed Expenses
Rent/Mortgage $__________________
Property taxes/Insurance $__________________
Trash collection $__________________
Car payment $__________________
Car insurance $__________________
Other loan payments $__________________
Health insurance $__________________
Day care/Elder care $__________________
Flexible Expenses
Savings $__________________
Gas/Oil $__________________
Electricity $__________________
Water $__________________
Telephone $__________________
Food $__________________
Transportation/Gas $__________________
Car maintenance $__________________
Education $__________________
Personal expenses $__________________
Other $__________________
Total Expenses $__________________
Budgeting for credit.
Wages $__________________
Public assistance $__________________
Child support/Alimony $__________________
Interest/Dividends $__________________
Social Security $__________________
Other $__________________
Total Income $__________________
My Income My Expenses
Examining your credit report.Your credit report includes your name, current and previous
addresses, and other identifying information reported by
creditors. It also includes public record items obtained from
local, state and federal courts. Your credit report will also
indicate which accounts, if any, creditors have turned over to a
collection agency.
Since your credit report contains such valuable information, it’s
a good idea to check it for errors periodically. There are three
major credit bureaus through which you can obtain a copy of
your credit report.
They are:n Equifax, P.O. Box 105873, Atlanta, GA 30348, (800) 685-1111n Experian, P.O. Box 2002, Allen, TX 75013, (888) 397-3742n TransUnion, P.O. Box 1000, Chester, PA 19022, (800) 888-4213
On average, it takes consumers over 1 year to find their credit has been tampered with.
When’s the last time you checked yours?
You can also visit annualcreditreport.com or call
(877) 322-8228 to receive credit reports from one or all
three credit bureaus.
If you discover an error, take steps to correct it right
away. The longer the error remains on your credit
report, the more damage it could do.
9
10
It is recommended that you check your credit report on a regular
basis. If you do request your credit report, and you find your credit
history is unfavorable, there are some ways you can improve it:
n Make your payments on time; the longer you pay on time the better
n If you have missed payments, get current and stay currentn Pay off debt instead of transferring it from one credit
card to anothern Keep balances on credit cards lown Apply for and open new credit accounts only as needed
Please note that closing a delinquent account does not
make it go away. A closed account will still show up on your
credit report, and may factor in to a lender’s decision.
* Percentages may vary for each major credit bureau.
Reviewing your credit score.In addition to your credit report, you also have credit scores maintained by each of the three major credit bureaus. Your credit score
is your credit rating. You typically have three credit scores, one for each major bureau. Each of the three major bureaus has its
own unique name for your credit score. Your credit score may impact credit availability and may determine what interest rate you
will receive. Credit scores are based on various credit data found in your credit report. This data can be grouped into five different
categories.* The categories listed to the right affect your credit score.
They also have percentages indicating their importance to lenders.Payment History
Length of Credit History
New Credit
Amounts Owed
Types of Credit Used
35%
15%
10%
10%
30%
Lending differences.Direct lending—Direct lending is a direct
transaction between the borrower and the
lender, without a third party (i.e., automotive
dealer) getting involved in the vehicle financing
process.
With automotive direct lending, the buyer
(borrower) chooses a vehicle, then goes directly
to a lender or other finance source (bank, credit
union, etc.), completes a credit application and
negotiates rates and terms. The buyer then
returns to the dealer and the finance source
funds the purchase of the vehicle. The buyer
then makes payments to the finance source.
Indirect lending—When a buyer and a retailer enter into a finance
contract where the buyer agrees to pay the amount financed over the term
of the contract, plus an agreed-upon finance charge. The retailer then sells
the contract to a bank, credit company or other finance source. The buyer
will send the required payments to the finance source. This type of financing
is commonly used in motor vehicle transactions and is often referred to as
“dealership financing.”
For the vehicle buyer, indirect financing offers a number of advantages:
n Special offers and programs — any current manufacturer’s
incentive or low-rate programs are made available to you through
the dealership
n Access to multiple finance sources — a typical dealership
may have a relationship with dozens of different finance sources,
thus increasing your chances of obtaining suitable financing
n One-stop shopping — allows you to choose your vehicle and
secure financing—all at the dealership
11
Buying vs. Leasing.The decision to buy or lease a
vehicle is often based on individual
preferences, driving habits and
mileage requirements.
For example, if you’re thinking of
modifying or personalizing your
vehicle, it’s best to buy it.
Answer the following questions in
the chart to find out whether buying
or leasing is right for you.
Over 17 million new vehicles are acquired each year.
How will you acquire your next vehicle?
Characteristics Indicate Purchase Indicate Lease
n Miles driven per year? over 15,000 under 15,000
n Like to modify the vehicle with alarm, paint, speakers?
yes no
n Want to extend payments over more than two to three years?
yes no
n Want a new car every two to three years?
no yes
n Lowest payment? (for the same term) no yes
n Resale value important? yes no
Buying a vehicle with credit.There are many things to consider when financing or leasing a vehicle. Do you have credit?
If so, is it in good shape? Can you afford a vehicle payment? How will insurance affect your
payment? Here is a list of things to expect when going through the vehicle buying process.
Check them off as you go:
1 2 3
13
At the dealership: �Bring proper documentation (i.e., driver’s license, trade-in, title, etc.)
Know what interest rates and special incentives are available. This will assist you in negotiating the best possible APR
Stay within your price range
Review the terms and conditions of all documents carefully prior to signing
After leaving the dealership: Make sure you maintain your vehicle’s insurance
Make payments on time or early to avoid damaging your credit
Take good care of your vehicle — this will help you maximize the vehicle’s life and increase its resale value (and avoid potential excess wear and use charges in the case of a leased vehicle)
Before visiting the dealership: Establish credit, if you haven’t already Evaluate your financial situation Review your credit history and credit availability
Determine what you can afford Determine if you will be trading in a vehicle and if you will be making a down payment
Consider how the cost of vehicle insurance will affect the vehicle’s affordability
Research maintenance and fuel expenses Know what interest rates and special incentives are available. This will assist you in negotiating the best price possible.
Knowing your rights.Borrowers have numerous protections under the law. Here is a short list of federal laws
designed to protect you:
n Equal Credit Opportunity Actn Truth in Lending Actn Fair Credit Reporting Actn Fair Debt Collections Act
These rights cover a range of practices—from the credit application, to the creditor’s
obligations if the application is turned down, to collection practices. Information about these
rights can be obtained from a legal advisor or from the Federal Trade Commission (ftc.gov).
Some state laws may provide you with
additional rights. For information on these
laws, contact your state’s consumer
protection agency or Attorney General’s
office (Web site:www.naag.org).
Once the finance agreement for your
vehicle has been signed, you have the
legal obligation to make the regular
payments according to the schedule in
the agreement.
14
Signing the contract.Credit transactions are legal contracts between lenders and borrowers. The terms of the
contract are spelled out explicitly in the finance agreement. This agreement contains all of
the transaction details, including the total amount financed, the interest rate charged and the
required repayment terms.
Here are a few things to remember when reviewing the finance agreement:n The agreement should not be
signed if there are blank spaces, which could be filled in later
n Confirm the interest rate/APR being charged
n The APR in the contract should be the APR agreed upon during negotiations
n The amount financed and items financed (vehicle, insurance, extended warranty) are all as agreed
The finance agreement is the single
most important document in a vehicle
credit transaction. Once signed, it is legally
binding. It is very important that you read
the contract and fully understand and
agree with all of the terms.
15
Summing up credit.With good credit, you won’t have to miss out when opportunity knocks on your
door. Not only will you have the ability to acquire the things you need today, such as
homes and vehicles, you’ll also have a strong foundation for the things you may want
tomorrow.
Financing a vehicle is one of the most significant financial transactions you can
undertake. We’re committed to giving you the products and services you deserve.
Understanding credit and how it works will give you the power to get the best deal for
yourself. Be sure to ask your dealer about available financing options and terms as well
as current rates.
We want you to have the good credit you need to get the vehicle you want. Log on to
fordcredit.com/creditsense for additional information on credit and how to use
it wisely.
n To receive a free annual credit report, visit annualcreditreport.comn For more information about credit, contact the Federal Deposit Insurance
Corporation (FDIC) at fdic.gov, the National Automobile Dealers Association at nada.org, or the Federal Trade Commission at ftc.gov/credit or (877) 382-4357
16
Making your payments on time is very important because:n Payments are reported to
credit bureaus that store historical data on how individuals pay their debts
n The stored data is provided to creditors when additional credit applications are made
n A good payment history gives the borrower more options to access credit at competitive rates
n If payments are missed or habitually late, the borrower will have fewer options for obtaining credit
Learning the language: contract terms.Acquisition Fee—An acquisition
fee is a charge paid by the lessee to
lessor that helps cover the cost of
acquiring and servicing the contract.
This fee is either paid up front or
included in the gross capitalized cost.
Add-On Products—These include,
but are not limited to, extended service
plans, approved dealer-installed
equipment, rustproofing and sealant
packages that are added to the total
cash price of a vehicle and included in
the amount financed.
Amount Financed—This is the
total amount of credit provided to you
and is subject to finance charges. It
is determined by the sale price of the
vehicle plus any charges for taxes, title,
license fees, service contracts—such
as an extended service plan—and any
other fees, less the down payment,
manufacturer’s rebate, or trade-in.
APR—Annual Percentage Rate is a
measure of the cost of credit expressed
as a yearly interest rate. All lenders
are required to disclose their rates as
an APR to allow consumers to make a
proper comparison.
Co-Signer—If the person borrowing
money or financing a purchase has
limited or marginal credit history, the
finance source may permit another
creditworthy person (the co-signer)
to sign the obligation and become
equally responsible.
Down Payment—The total
amount of money you pay up front
(cash, rebates and trade-in) to reduce
the amount financed.
Finance Agreement—The written
contract between the parties in a
financing transaction. The terms as
stated in this agreement are legally
binding on both parties.
17
18
Manufacturer’s Suggested
Retail Price (MSRP)—The retail
price of the vehicle as recommended
by the manufacturer—often called
the “sticker” or list price.
Security Deposit—Cash amount
collected at the beginning of the lease
as security for performance of all lease
obligations and refunded at lease-end
unless there is excess wear and use on
the vehicle or if the mileage exceeds
contract limits. Allowable charges would
be deducted before a final distribution
of the security deposit is made.
Term—The number of months you
agree to pay off the contract (loan) with
equal monthly installments (payments).
19
Learning the language: credit terms.Bankruptcy—A legal action under
which debtors unable to pay their debts
can petition a court to either be released
from their obligations after a court
has liquidated their assets or to allow
debtors to pay a portion of their debts.
Capacity—The amount of cash
the customer has available to make
the payments on a new debt after all
existing obligations have been paid.
Character—Stability plus
willingness to pay equals a borrower’s
financial character.
Collateral—An asset that is pledged
as security for a loan or financing, such
as a vehicle. The creditor has the right
to take control of and sell the collateral
if payments are not made as agreed.
Credit Bureau—A company
that gathers data on how individuals
are paying or have paid their credit
obligations. The information is
provided to creditors when
specifically requested.
Credit History—The record of
how a person has borrowed and
repaid debts.
Credit Report—The form the credit
bureau issues containing the financial
and personal data about an individual.
Credit Score—A numerical
representation of the likelihood of
an individual meeting his or her
credit obligations, calculated using
statistical models.
Creditor—The company or person
providing (or holding) the financing
or loan. Also known as a lender or
finance source.
Creditworthiness—An individual’s
past, current and future ability to repay
debts, in most cases determined by
reviewing the individual’s credit history.
Default—A failure to meet credit
obligations as agreed.
Finance Charge—The cost of
credit expressed as a dollar amount.
This is the amount charged to the
purchaser by the lender for use
of money.
Inquiry—A creditor request for a
copy of an applicant’s credit report.
Inquiries are noted on the report.
Installment Loan—A loan
repayable in substantially equal
payments over the course of the
finance term.
Late Charge—A dollar or
percentage charge imposed by
a lender on a borrower when the
borrower fails to make a payment
within the specified period after
the payment due date.
Lease—A financial transaction
in which an individual contracts
for use of a vehicle under specific
terms such as miles driven, monthly
payment, turn-in condition at
lease-end, liability for physical
damage, and fees and penalties.
Lienholder—An individual,
partnership or corporation with
a security interest in an asset.
Secured Financing—
A form of financing in which
collateral backs the credit.
Unsecured Financing—
Financing that does not
require collateral.
20
Setting goals.Now that you know how good credit can take you places, it’s time to set some financial goals to help get you where you want
to go. Use this page to write down your goals, the steps you will take to achieve them and by when you’d like to achieve
them. See example below.
21
Credit/financial goal:
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
Action steps:
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
____________________________________
Achieve goal by:
______________________
______________________
______________________
______________________
______________________
______________________
fordcredit.com
Questions about a particular transaction should be addressed to a financial advisor or attorney. The information presented in this booklet is, of necessity, general in nature and intended to provide useful
information which will assist a consumer in shopping for, negotiating, and handling a credit transaction. It is not intended as specific legal advice applicable to a particular consumer and transaction.
FMCCEDBK10506FC 18896 10/06