Leasing Vs. Buying a Car

Should you lease your next car, or should you buy it? It can be a tricky decision, with various positive and negative aspects to both options. An important factor ― one that some people neglect to consider ― is how each choice can affect a credit report.

It turns out that leasing and buying can have a similar impact on your credit score, so long as you’re able to make all of your payments in full and on time.

Leasing vs Buying Car

 

How Leasing Helps (and Sometimes Hurts) Credit Reports

Leasing a car can help you to improve your credit report. And, if you have no credit history to speak of, a leased automobile can assist you in creating one.

When you lease, you agree to pay a certain amount per month over a certain period of time. If you’re never late when paying, your creditor will let the major credit bureaus know, and it should strengthen your score.

A car lease is an example of an installment account. Whenever you’re paying sums of money in equal increments over a preset duration, you have such an account. Mortgages and student loans are two other kinds of installment accounts.

A full 35 percent of your credit score is based on the payments you make to your lenders. If you only have a few creditors, your car lease can have a significant impact on your score. In fact, if your score is lower than you’d like it to be, you might try leasing a car for the sole purpose of raising it.

Of course, if you miss one or more of your lease payments, you may lower your credit score. Before taking out a lease, then, take a hard look at your income, expenses and monthly budget. Be absolutely sure that you have the means to make your payments. Moreover, don’t forget that you’ll be responsible for paying for your vehicle’s upkeep.

Buying a Car

What about taking out a car loan in order to purchase an automobile? How might that course of action affect your credit score?

Well, the same basic principles are at play here. When you make your payments to your creditor on time, your credit score will go up, and when you don’t, it’ll go down.

The main difference is that with a car loan, your monthly installments would almost certainly be higher than they would be with a car lease.

What’s more, just as your auto loan payments can affect your credit score, your credit score can affect your payments. That is, if you have a good or outstanding score when you apply for such a loan, you’ll be eligible for a lower interest rate than you would be if your score were less than optimal.

With a lower interest rate, your car loan payments will present less of a financial burden, making it more likely that you’ll be able to pay all of them and ultimately raise your credit score. As you can see, when it comes to personal finances and credit scores, things so often get either progressively better or progressively worse.

Taking out an auto loan can improve your credit report in another way. Credit bureaus like it when people diversify their sources of credit. Specifically, they tend to reward individuals for relying on installment credit as well as revolving, or renewable, credit. A credit card is an example of the latter. Thus, if credit cards are currently the only kind of credit that you’re taking advantage of, you might find that securing a car loan automatically boosts your credit score by a few points or so.

Leases and Loans: Risks Usually Worth Taking

Whether you’re trying to obtain an auto loan or a lease, potential creditors may first conduct a hard inquiry into your credit history. And, every time such an inquiry takes place, your credit score will go down a little. With that in mind, it’s wise not to apply for too many leases or loans. Instead, do some research into available lenders, and then approach one reputable creditor at a time.

Also, in some cases, the fact that you’ve taken out a new account ― be it a lease or a loan ― can slightly ding your credit score. That’s because credit bureaus realize that leases and loans bring people new financial risk. Nevertheless, over the long haul, submitting all of your payments on time will have a net positive effect on your credit report.

As a final word of advice, it often makes sense to consult a credit repair company before you apply for an auto lease or loan. The experts at such an organization can scrutinize your credit reports and clear up any errors and misunderstandings that are damaging them. That way, your score will increase, and you’ll obtain the most favorable terms possible. Those pros can also answer any questions you have about leases and loans. Soon enough, you’ll be behind the wheel of a new vehicle, and you won’t have any extra financial worries to distract you as you cruise around.

Sources:

http://budgeting.thenest.com/leasing-car-improve-credit-score-21987.html

https://www.credit.com/credit-reports/tips-for-improving-your-credit-types-of-accounts/

http://www.experian.com/blogs/ask-experian/does-leasing-car-build-credit/

http://finance.zacks.com/happens-credit-return-leased-car-pay-difference-9907.html

http://www.marketwatch.com/story/how-will-leasing-a-car-affect-my-credit-score-1304360356298

https://www.wisepiggy.com/credit_tutorial/credit_score/does-buying-car-affect-credit.html

Build Credit: New Credit Lines vs. Authorized User

“It takes credit to build credit.”

This statement is all-too-common and a big reason for why many new borrowers turn to relatives for help. The method of becoming an authorized user to build credit is nothing new. In fact, many parents put their children down as authorized users on their own credit cards for this exact reason.

But, is the authorized user route really better than trying to build credit with new credit lines or is this all just a mirage?

Build Credit Credit Card

 

Credit Lines & Authorized Users, What’s the Difference?

A credit line is a fresh account — this could be a credit card, loan, line of credit or something else. An “authorized user” is merely someone placed on your account for the purpose of permitting them to access your credit line.

Why Add an Authorized User?

In most cases, this is done so multiple individuals can legally share a credit card. The example of a child accessing a parent’s funds is a common scenario. Many spouses will also do this, especially if only one has good credit.

Next, some people choose to add authorized users to their accounts to help the other person build their credit. This technique is debated heavily and for good reason, but it can be effective if the circumstances are right. Even so, it’s important that the primary account holder knows what they are getting into before they help.

Does an Authorized User Hurt Your Credit?

Co-signing for a home loan will potentially destroy the co-signers credit score. The impact is not so extensive when merely adding an authorized user to an account. But there is still a majority similarity between these two situations because the main borrower is extending trust to the authorized party.

The primary account holder does take on an inherent risk, but not in the same sense as with co-signing a loan. There will be no credit score damage for the act of adding an authorized user. The problem comes as a result of the authorized user being irresponsible — for example, the primary cardholder’s score will drop from late payments.

Can Authorized Users Build Credit This Way?

Many credit card issuers will report authorized users to the credit bureau. These entries will not show the same as they do for the primary borrower. Positive behavior will look good and influence a better credit score in the long run. Negative behavior will do the opposite and can drag down the authorized user’s credit score too.

Furthermore, it’s important to look at just how damaging an authorized user can be for the primary account holder. The best way to understand this is by looking at how a person’s FICO score is calculated in the first place. Here’s the breakdown for the vast majority of FICO scores that exist:

  • Payment history (35 percent)
  • Amounts owed (30 percent)
  • Length of credit history (15 percent)
  • New credit (10 percent)
  • Credit mix (10 percent)

For the primary borrower, the biggest drag here happens with the “amounts owed,” particularly when an authorized user maxes the card. The utilization rate will hit 100 percent for this card and will ultimately lift the total credit utilization rate between accounts. The primary holder will feel obliged to pay off the debt for the authorized user — and if they don’t, their credit score could decline as a result.

For the authorized user, there’s not much to complain about when considering the scoring metrics above. The biggest issue arises when the primary account holder needs to extract funds from the card. This action could make it seem that the authorized borrower has a really high utilization rate, even when it’s not their fault. The other variables, such as new credit and payment history, are not as important and are a non-factor when there’s no borrowing history.

The Better Option: Build Credit With a Credit Card

The faster way of obtaining a higher credit score is by establishing credit lines directly under yourself. Forget about the authorized user option and begin building your score with a basic credit card.

Believe It or Not, Secured Credit Cards Rock!

Here’s a good idea: Go for a secured credit card and plop down a $1,000-$3,000 collateral. Make sure it’s a card that offers conversion to unsecured after you prove that you are a responsible and trustable borrower.

Why? Because a higher credit limit helps and makes it less difficult to be active with your card without triggering a high utilization rate. This factor is very important because your debt-to-credit ratio weighs heavily on your FICO score. In fact, 30 percent of your credit score comes down to this single variable.

Conclusion

Building your credit can be difficult when you have no history to show a card issuer or lender. Having someone who will put you down as an authorized user can often help, but only if the creditor reports you as well. Be careful before getting into any of these situations — and if you want quicker results, set up your own credit lines instead.

Sources:

http://www.creditcards.com/credit-card-news/credit-utilization-fico-1270.php

www.nerdwallet.com/blog/credit-cards/credit-card-secured-unsecured-change-switch/

https://wallethub.com/edu/authorized-user/24717/

http://blog.ovationcredit.com/2017/03/understanding-your-credit/

7 Tips for a Debt-Free Summer Vacation

Taking a vacation with your family should be a pleasant thing – a rare treat in a schedule that is otherwise consumed by soccer practices, school recitals and working too many hours. Don’t let debt get in the way. It is possible to have a debt-free summer vacation and still have an amazing time with these seven tips.

Travel Debt-Free

 

1. Start Small

Keep in mind that small savings can add up to big amounts. Try tucking aside a couple dollars each week. Within a year’s time, you’ll have enough money saved to afford a family vacation (if not two!). The best part about this method is that you won’t feel it in your wallet or pocketbook and it can be fun for the whole family. Imagine a family piggy bank with a savings thermometer. Even small children can get involved with contributing change to the family vacation savings.

2. Research Your Destination

Next, spend some time researching your destination. You might find that some weeks or seasons are more expensive than others. Take New Orleans for example. Try booking a vacation during Mardi Gras or one of the city’s many jazz festivals and you are going to spend comparably more for a hotel room than if you plan your trip for an off-season month. Likewise, look at the location. You could save money by staying in a high-rise hotel on the city limits, but there won’t be much to do around you and you will have to pay for transportation into the city proper. Instead, pay a little more to book a hotel along a public transportation route or reserve a room in a small city located nearby. You will likely save money on the room rate as well as parking, and your transportation costs into the city proper may not be that different.

3. Look at Hotel Locations

You might also find that you can get the exact same experience for less at a nearby spot. Hotels are often cheaper on the outskirts of popular destinations than at the center, and sometimes the savings can be significant. Choosing a hotel 25 minutes away from your target destination could save you hundreds of dollars over the course of your vacation.

4. Compare Amenities

Comparing amenities is smart as well. Variables like whether breakfast is included, the price of parking, the proximity to local attractions, the necessity of taking public transportation instead of walking everywhere and the presence of a pool or other recreation can make a real impact on your wallet. Let’s say you are considering staying at the ABC Hotel and it costs $100 per night but includes breakfast and parking. It might cost more for the room than the XYZ Hotel that is charging $80 per night, but if XYZ charges $15 per person for breakfast and $20 per night for parking, ABC is a better deal.

5. Prioritize Your Vacation Goals

You may want to take the family paragliding, visit museums, see a popular show and eat out for every meal at nice restaurants, but wouldn’t you rather come home from your vacation and not have a credit card bill to face? The same way that your time is finite, your money is too. Create a budget for what you can afford to spend on your holiday and prioritize those activities the family wants to enjoy. The tradeoff could be something as simple as eating doughnuts for breakfast instead of a fancy brunch so that you can afford ice cream and bicycle rentals later.

6. Book in Advance

Booking your travel in advance is almost always cheaper than trying to get a last minute flight or hotel reservation, but did you know that activities can be as well? Purchase your lift tickets, museum passes and tours in advance. Sometimes you may have to agree to a schedule and book a specific time, but the savings can be considerable. Plus, when you book in advance, you pay for parts of your trip as you go, which can make affording the whole thing much easier because you can see the cost outlays.

7. Think Outside the Box

Finally, when it comes to planning a debt-free summer vacation, don’t be afraid to think outside the box. There are wonderful destinations just about everywhere, as long as you aren’t afraid to think differently – and these more unusual activities, destinations and appointments can be a good bit cheaper than their more popular counterparts. Major cities have lots to offer, but so do small towns. A family vacation to a major amusement park could be lots of fun, but you could also have a good time exploring a National Park, camping on the beach or on a road trip to silly attractions. It is the same with your hotel. You don’t need a four-star suite; you could be just as happy in a cheap hotel with adjoining rooms or an Airbnb. Try coming up with more novel ideas to spend your vacation time together and see the savings add up.

Keep in mind that the purpose of your family vacation is to do things together as a family. It doesn’t matter if you fly halfway across the world or drive to the next state. What matters most is that you are together outside the distractions of everyday life. The conversation, the laughter and the memories can be had for pennies on the dollar when you abandon the idea of a large-scale vacation and focus instead on how to make your family vacation one to remember.

Sources:

Dave Ramsey, “Debt-Free Vacation Planning Advice from Dave Fans.” [Accessed: https://www.daveramsey.com/blog/debt-free-vacation-planning-advice-from-dave-fans]

Dave Ramsey, “15 Insider Tips to Enjoy a Debt-Free Vacation.” [Accessed: https://www.daveramsey.com/blog/15-insider-tips-next-debt-free-vacation]

Living Well Spending Less, “How to Plan a Debt Free Vacation,” April 22, 2017. [Accessed: http://www.livingwellspendingless.com/2016/04/22/plan-debt-free-vacation/]

Penny Pinchin Mom, “How To Plan A Debt Free Vacation,” Penny Pinchin Mom, May 2, 2014. [Accessed: http://www.pennypinchinmom.com/plan-debt-free-vacation/