There are a lot of things a used car buyer should do before heading out for a purchase. The most important might be to run your credit report before buying a used car.
Your credit report is going to be used to determine your interest rate on the used car loan you are going to be able to obtain. Mistakes on your credit report are going to result in a higher interest rate for your purchase, which is going to lead to higher monthly payments and a total higher cost for your used car.
LaToya Irby, the About.com Guide to Credit/Debt Management has an article on how to get a free copy of your credit report. As LaToya explains, "The Fair and Accurate Credit Transactions Act of 2003 (FACTA) made it possible for you to get a free credit report. Through FACTA you can get a free copy of your credit report from each of the three major credit bureaus - Equifax, Experian, and TransUnion - each year. You should take advantage of this privilege by ordering your credit report and using it to monitor your credit history."
One thing a free credit report doesn't have is your FICO score. However, LaToya does explain how to get a free copy of your FICO score. Your FICO score is how lenders determine how much of a credit risk you are. The higher your FICO score the lower your interest rate tends to be. By the way, the FICO score site LaToya recommends comes with a complimentary subscription for three months, if you provide a credit card. Just be vigilant about cancelling it in time!
OK, so now you've found your free credit report.
You've got your FICO score. And, you've discovered an error. What steps can you take when you find an error on your credit report? The first thing you have to do is take the step of notifying the credit reporting bureau there is a mistake on your report. The bureau will walk you through the steps necessary to contest the error.
So, what happens if that doesn't work? The next step you have to take is contacting the newly established Consumer Financial Protection Bureau. It was established, according to its website, "to make markets for consumer financial products and services work for Americans - whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products." The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the consumer bureau. In January of 2012, President Obama appointed Rich Cordray to be the first Director of the CFPB.
It's the CFPB that is going to help you resolve problems on your credit reports that have not been fixed. Scott Pluta, Assistant Director for the Office of Consumer Response at the Consumer Financial Protection Bureau, wrote a blog post recently that explained what you can do. He said, "(W)e can help consumers with individual-level complaint assistance on issues with their credit report. The types of complaints we can work on include:
- Incorrect information on a credit report
- A consumer reporting agency's investigation
- Improper use of a credit report,
- Being unable to get a copy of a credit score or file, and
- Problems with credit monitoring or identify protection services."
As I've explained in the past, one of the most important steps in buying a used car is securing your financing ahead of time. You never want to make your financing part of the process when buying a used car because it allows the seller to manipulate the process (as in, "I was looking to spend $300 a month.) Inevitably, you end up spending more than you intended when you base a buying decision solely on monthly payments.
Read my advice on Used Car Buying Tips to better understand why you want to keep financing separate. By doing so, you can make a used car dealership compete for a better interest rate for you, which lowers your monthly payments and overall cost.
However, your used car seller is not going to be able to help you if there are mistakes on your credit report. That's why you need to make sure everything is in order before buying your next used car.