On Leasing, Buying, and Credit

When we started looking at the Jetta we knew that this was most likely the car that we’d be purchasing, and we also knew that we both had what would be considered excellent credit. It was a relatively painless process. We’d researched the Jetta, as well as some competitors (Camry, and Accord). We went out and looked at each of the cars in turn, made a detour towards a Volvo S40 for a short while before settling on the Jetta. The one mistake that we made was that my fiance made it known that this was the car we were getting, and as a result we got jobbed on the price. But then, you have to expect that.

We started looking for a second car about two weeks ago. We had initially planned to use one car and mass transit when possible. However, it recently became clear that my job and my fiance’s fluxuating work schedule would make this impossible. Having just bought a car, and wanting to keep our costs low, we decided to lease this time. Why lease? We wanted to keep our payments low, and we already owned a car. It seemed like a better fit.

The search process was relatively quick a simple. We started with a short list of musts. As this is our second car we chose: highly reliable, automatic transmission, power windows, and the presence of a stereo. This last one was a bit odd, because I had originally thought that all cars came with a stereo of some sort. I was wrong.

Having set our wants, we just started looking at lowest cost vehicle that offered what we wanted. This led me to three vehicles: The Honda Civic, The Toyota Corolla, and The Hyundai Elantra. The Impreza only entered consideration when we discovered that Subaru was currently offering a sign and drive deal on the vehicle, for $200 a month. This ended up being the choice not only because of the low monthly payment, but that the vehicle met all of our requirements and had a lot of pluses. Amore powerful engine, all-wheel drive, remote keyless entry, and cruise control, among others. Great, now all that’s left to do is go, test drive the vehicle, sign and drive. I’d been through this before, and I knew I hadn’t made any large purchases since I last checked my credit, and I was current on all my bills. I was an excellent FICO score, this would be a breeze.

Wrong. It turns out that while two of the three credit agencies gave me a FICO comfortably above 700, one, Equifax, rated me a full 60 points lower. Still no problem though, Right? I’m a new grad so I should qualify for that guaranteed acceptance offered by Subaru and most other car companies. Wrong again. Turns out that those guarantees apply only when purchasing a vehicle and not leasing. In the end I qualified for the car, which is not a surprise since there shouldn’t have been a problem to begin with. I tend to think that they were just screwing with me and trying to get more money from me. When I intimated that there were other dealerships, with the same cars, and deals, who would be more the willing to merely look at the two other credit reports instead of the one they had decided to use, it was interesting to see how quickly they managed to get approval for the lease.

So, what was learned?

First I learned that leasing is great when you want new, and want to pay used prices (or less). This has a downside though, while my payments on this brand new vehicle, are less than what I would pay for a 2 or so year old used model. I also walk away without a vehicle in four years, effectively having rented a car for 4 years. In my case this was ok. We already own one car, and it was more important to keep payments down. Though once this lease is up, we’ll probably be purchasing a second car.

Second and perhaps more importantly I learned that you must go into this process knowing what is going to happen, and being ready for it. I failed in this respect; I had relied on my previous experience without properly preparing myself for another go at it.

How could I have better prepared? Instead of relying on what I knew from a few months ago, before going into the dealership I should have pulled my credit reports and checked them for errors. What had happened in my case was that my father issued a card to me, which was linked to his credit card account, for use in emergencies.

Even though this is not my account, it showed up on my credit report. With his full balance! He’s never made any late payments, but it’s a business account, and as such has a high balance. While this is not a problem for my father, his income is much greater than mine, the balance was equal to nearly 33% of my yearly income. This was a major problem for me because somewhere around 30% of your credit score is based on your debt load, which that account greatly skews. I’m working on having the account removed from my report; I’ll let you know how that goes.

This was the most important lesson that I gained from this experience. I’ve been meticulous about managing my credit and debt, never making a late payment, always paying at learn the minimum and often more, and making proper usage of my credit. Despite this and having recently checked my credit I was still caught off guard by a reporting error. In the future I’ll be keeping closer tabs on my credit reports, pulling from all three agencies at least once a year, and before any major purchases to address any discrepancies and stay on top of my report. I’d recommend you do the same.