Never use a “Finance Company”

How many of you have gone to the auto dealership and been hustled into a loan that seems just too expensive? How many have found that you needed a new washer or dryer or fridge that has died and found a great incentive to use the “house financing”? BUYERS BEWARE! The financing they use could be through a finance company and there are many to choose from, even finance companies that have well respected names ie: Wells Fargo Finance, House Hold Finance, Chase Finance and many others. This can be very deceiving but the facts tell us those finance companies on your credit report, even if paid on time with no lates, as long as you have a finance company on your credit report, your scores are less than what they could be.

So what is a finance company? A finance company is a company that caters to consumers with less than perfect credit. Hmmm… so the interest rates are higher, the late fees are heavier and the cost to your credit score is significant. Don’t do it! Here is what to do instead.

By going to your credit union or bank before you need an appliance or car and applying for a line of credit or establishing a loan, you can “shop” for your appliance or car knowing what interest rate and charges you are going to get beforehand. The add-on fees and interest charges won’t be a surprise to you. Don’t tell them you already have financing or you will not be able to negotiate a good deal for your purchase. Just sign the contract for the purchase and then let them know you already have financing and smile all the way to the bank.

Get a mortgage on your credit report

Because mortgages are usually a lot harder to qualify for, the credit bureaus scoring modules give more points for those who have a mortgage on their credit report. It also means, there will be equity in the property and people will be more solid in making their payments and be more permanent. There are several challenges to remember when you get a new loan,

1 – it’s a new loan, 2 – the loan has no history, 3 – it’s a 100% debt to credit limit ratio, 4 – you have an inquiry. There are also some potential problems that could happen because of getting a mortgage that you will have to weigh as well. 1 – too many inquiries, 2 – too many accounts with balances, 3 – finance company, 4 – debt to credit limit on accounts is too high, etc.

High risk lenders are lenders that prey upon people who have bad or no credit and promise to help establish credit for you but under the guise of bad or no card credit offer providian only very high interest rates to begin with or also require a down payment or membership fee to have the opportunity to have this wonderful high interest rate. These could be finance companies, payday loan companies, auto dealerships, furniture companies, rent to own companies, companies that cater to people who have no credit or bad credit and trying to establish credit or don’t know that there are better ways of establishing credit.

The solution… there are several ways to counter this and most people don’t know where to begin. We will tell what works here, but the details will be written below in the Credit Repair section. First, you could repair the negatives on your credit by disputing the negatives with the credit bureaus. You could go to a national bank and start a Secure Credit Card with them to establish a pattern of good credit and when your credit scores are up, then negotiate to an Unsecured Credit Card. The trick is to avoid High Risk Lenders at all costs. They cost too much, and actually cost you points so that your scores stay low and keep you in a high interest rate bracket that costs you money over and over again.

Merchant accounts are accounts with local merchants or store credit such as furniture companies, or small local department stores. These could also be national department store chains that offer a credit card. The issues here are that they are department stores and they do not list high on the credit bureau listing for quality. The more national they are, the more they will rate in quality.

There is a tendency for these stores to offer a discount when you go the cash register. I think the hint should be that it is called a “cash register” not a “credit register”. Anyway, the store will offer a 10, 15, or 20% discount on that purchase if you sign up for their credit card. It actually becomes a trap and will cost you considerable money if not taken seriously into account with what you already have in the way of credit and what types of credit you have. The point is this, if you don’t need it for establishing credit, don’t be suckered into getting just because of the discount. It costs you in points because of inquiries, new loan, new loan without history, new loan with a balance, department store credit, etc.

The solution is not to be enticed and to know before hand whether it is a good idea to have a department store credit on your credit report or if it will cost you points for having it on there. Unless you have no credit and it is a national department store with a good reputation, it probably is not worth it to have it in your portfolio. If you are just starting out getting credit, it might be worth going and seeing if you qualify for a national bank credit card or a reputable national credit card first before resorting to a department store credit card and credit card merchant accounts. If it is the only thing you qualify for, then it is worth it and will help to establish your first credit that can be added to later after you have established a track record of paying on time and keeping balances low.

A word of caution to women. Unfortunately, because studies have shown that women do have a tendency to overuse department store credit more readily than men, the credit bureaus do take points off if women have more department store credit cards than other types of credit. All the other rules apply as well. Keep only one or two at most and keep the balances low and raise the limits on those cards as a way of reducing the negative effect of department store credit cards in your credit portfolio.