Better Credit
Tidying Up Your Credit History - 10 Tips for a Better Credit Rating - July 2014

News of tighter capacity and greater freight demand is good news for truck operators, said Karen Pembroke, Director of Credit for PACCAR Financial, which is the captive finance company for Kenworth and Peterbilt.

Still, owner-operators are proceeding slowly and cautiously, Pembroke said, not only because economic conditions can change rapidly, but also because increasing federal regulations are making the business more challenging. Fortunately, the market for used trucks is growing stronger and the ability of operators to get financing to acquire new equipment has vastly improved since the economy plunged six years ago, Pembroke said. Still, operators should be just as deliberate when choosing a lender and applying for loans as they are when determining whether to buy new equipment.

Before applying for a loan, Pembroke recommends truck operators take a fresh look at their credit report at AnnualCreditReport.com/ and their safety assessment on the U.S. Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability (CSA) program web site: http://csa.fmcsa.dot.gov/ . If something shows up on their credit report or on their safety assessment, Pembroke recommends drawing up a plan on how to best address those issues. Organizations like the Owner Operator Independent Drivers Association (OOIDA) http://www.ooida.com/ and the Owner-Operator’s Business Association of Canada http://www.obac.ca/Web/ may provide some guidance.

Pembroke said it’s also important to show lenders how you generate your income. Who do you haul for and how long have you been hauling for them? Lenders are looking for longevity and stability when they consider whether to approve loans.

“Be aware that if you have been driving a highway truck and refrigerated trailer and haul refrigerated loads regionally or across the country, but now you want to buy a dump truck and haul aggregate, you may have a harder time getting the loan,” Pembroke said. “In those cases, you may want to consider doing some homework and write up a simple business plan. Be sure to include the companies you will be hauling for and how you plan to generate new business. If you don’t have your own authority, determine if you can and should get it. Consult with OOIDA, which has resources for members to help them in that process.” Visit the U.S. Small Business Administration’s web site for tips on how to write a business plan:http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/how-write-business-plan/

Pembroke offers a list of 10 tips that can help operators improve their credit ratings or protect their ratings so that when it comes time to apply for a new or used equipment loan, their chances of an approval increase. Following these tips may also help make them eligible for the best loan rates. Here they are:

Tip No. 1 – Get copies of your credit reports from all three major credit reporting bureaus and check their accuracy. Check your credit history by requesting a report from all three of the major credit reporting agencies. US law requires each of the nationwide credit reporting agencies – Equifax, Experian and TransUnion- to provide you with a free copy of your credit report, at your request, once every 12 months. Canada has similar rules. See the sidebar below on how to make a free request in the United States and Canada and how you should stagger your requests over several weeks to several months.

Verify the accuracy of the information contained in the reports. “If you see something that’s wrong, make note of it and write a brief, but detailed explanation of the error, why you think the information is incorrect and how the information should be updated or corrected,” Pembroke said. “Use accurate dates and amounts since the credit reporting agency must verify the information you provide with your creditors.” For a simple dispute letter and instructions, see http://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports.

Tip No. 2 – Remember your credit report is yours. If there’s something on it that’s accurate, but you believe requires further explanation, make a request to the appropriate credit reporting agencies. Truck operators are among the few professionals who experience on a daily basis how circumstances beyond their control can greatly impact their financial situation, Pembroke said.

“If you’ve ever made late payments resulting from circumstances beyond your control such as delayed accounts receivable, you may want to consider writing up a brief explanation,” Pembroke said. “Then submit it to the credit reporting agency and ask that it be added to your credit report. It can help current and future creditors better understand your business situation.”

Tip No. 3 – Establish good commercial credit references. Establish or obtain commercial credit references from three or more companies with whom you do business, Pembroke said. If you do not have commercial credit established, other vendors with whom you regularly do business, such as tire dealers, diesel fuel providers or truck stops may work. The credit references show you are a good credit risk.

Tip No. 4 – Pay down or pay off credit cards or other “revolving credit.” Several months to a year before applying for a truck loan, use one of your credit reports (see Tip No. 2) to determine your account balances and the interest rate being charged on those balances. Develop a payment plan that puts more of your available budget towards paying off or paying down your credit cards or other revolving lines of credit, she said. Start by repaying those accounts that charge the highest interest rates, while maintaining minimum payments on your other accounts.

“Paying off old debts and credit balances can be difficult even in the best of circumstances,” Pembroke said. “But outstanding balances can contribute up to 30 percent to your financial score’s calculation. Creditors also more closely scrutinize applicants who have maxed out their revolving credit lines.”

Tip No. 5 – Avoid opening new lines of credit, even to transfer balances. If at all possible, avoid opening any new credit cards or revolving lines of credit, even if you’re planning to transfer the balance on a high-interest credit card to a new card with a lower interest teaser rate, Pembroke advises. If you’re shopping for a lower rate, you’re often better off negotiating with your current credit card issuer.

Tip No. 6 – Get current and stay current. If you are current with all of your creditors, congratulations. Since payment history contributes to more than a 1/3 of your financial score calculation, staying current with your bills is the best thing you can do to keep your score higher, Pembroke said. If you have any delinquent payments on your record, it’s vital to get current and stay current on your payments.

“The longer you pay your bills on time after being late, the higher your credit score will rise,” she added.

Tip No. 7 – Whenever life brings challenges, stay in touch with your creditors. Occasionally, life delivers unavoidable challenges that may require you to make difficult decisions with significant financial consequences.

“For example, your spouse or one of your children becomes ill and requires hospitalization, and you have to stay closer to home or stop working altogether for a brief time,” Pembroke said. “Or, a major shipper decides to go with another brokerage or another truck operator, leaving you scrambling to find new business. Or a careless, uninsured motorist crosses in front of your truck, causing an accident that leaves you unable to work for several weeks.”

Whenever you find that circumstances require you to reduce or even skip payments, it’s important for you to contact your creditors or a credit counseling service immediately and discuss your situation early on, Pembroke said. Don’t be embarrassed to call. In most cases, creditors may negotiate a lower payment, allow you to skip a payment, or pay only on the interest for a short time, and then make it up later when you’re back on your feet.

“Before you call, sit down, add up all your bills and living expenses, then draw up a realistic budget, determining what you can afford,” Pembroke said. “Then stick to that plan.”

By taking proactive steps, you may be able to avoid late payment fees and more importantly, avoid having a late payment reported to a credit reporting agency and sully your credit rating.

Tip No. 8 – When financing your truck, diversify your resources by using a financing company that truly understands trucks and the trucking industry. By using a captive lender that’s linked at the hip with the truck manufacturer and truly understands trucks and the trucking industry, like PACCAR Financial, truck operators don’t have to explain the necessity for certain equipment on their trucks, Pembroke said. As a captive lender, PACCAR Financial offers truck operators various loan and lease financing options to acquire Kenworth and Peterbilt trucks. Because PACCAR Financial works closely with Kenworth and Peterbilt truck manufacturers and their dealers, we can offer options that better matches a truck operator’s needs. Conventional lenders that don’t have that same expertise may require operators to change or drop certain specifications in order to lower the amount of the loan. But those changes may increase operating costs or negatively impact resale value and productivity.

Tip No. 9 – When financing a new or used truck, be prepared to make a strong down payment. If you are buying a new truck for the first time, have enough money from the sale of your used truck and from what you have saved to make a strong down payment. If you are buying your very first used truck, count on saving a significant percentage of the truck sales price for a down payment. While down payment requirements vary based on your experience and credit history, it’s important to remember that the larger your down payment, the lower your monthly payments will be as a result.

Applying for state and federal grants, like those available from the California Air Resources Board, can help you pay for new equipment with technology to reduce emissions and to run more fuel-efficient, Pembroke said. While having those grants when you apply for your loan can make your loan application more attractive to a lender, be careful, Pembroke advises. For example, don’t count on the grants to help you reach the lender’s preferred down payment threshold. Pembroke said lenders are still looking for loan applicants who have an appropriate amount of “skin in the game.”

“They want to know that the person borrowing the money has a vested interest in making sure the business will succeed,” she said.

Tip No. 10 – Safety Pays: Examine your safety assessment on the CSA website If you drive under your own authority, visit the Federal Motor Carrier Safety Administration’s CSA website and check your safety assessment under SMS at http://ai.fmcsa.dot.gov/sms/ .

“While lenders don’t usually examine safety records, an unsatisfactory carrier safety rating could impact a shipper’s decision to hire you,” Pembroke said. “A checkered safety history can also make it difficult to get or keep insurance coverage, which is a common loan requirement.”

If you drive under the authority of your leased carrier, Pembroke still advises looking at your carrier’s safety record and score and your driver record and score. As shippers are more closely examining the safety scores of their carriers, establishing and maintaining a good safety record is becoming more critical. Plus, insurance providers are looking more closely at those records to determine insurability and rates.

“By utilizing captive lenders, like PACCAR Financial, who understand trucks and the trucking industry, you can not only get competitive rates, but also more consistency through good times and bad,” Pembroke said. “While other financing providers exited the truck financing market at the height of the recent downturn, PACCAR Financial kept offering financing options.

“We’re in it for the long haul,” she added. “And that matters to operators who want to know that their lender won’t close up shop on them when things get tough.

“Regardless which lender you choose, by tidying up your credit history and making sure that your financial house is in order, you’re placing yourself in a good position to qualify for a loan,” Pembroke said. “Plus, following these tips will most likely make the loan process less stressful.”

How to Check Credit Reports From All Three Agencies For Free Annually

US law requires the three major credit reporting agencies, Equifax, http://www.equifax.com/home/en_us , TransUnion, http://www.transunion.com/ , and Experian, http://www.experian.com/ , to provide consumers, upon request, a free copy of their credit report once every 12 months from a centralized source. This centralized source includes a Web site, a toll-free telephone number and a postal address.

You can request the reports by filling out the request online: www.annualcreditreport.com ; calling 877-322-8228. Or request them in writing, by filling out the request form https://www.annualcreditreport.com/cra/requestformfinal.pdf/ , and sending it to the following address: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, Ga. 30348-5281.

In Canada, there isn’t a centralized source offering free credit reports. Still, you can request a free credit report from each of the credit reporting agencies annually by visiting their Canadian websites: Equifax Canada: http://www.equifax.ca/ , Transunion Canada: http://www.transunion.ca/ , or Experian Canada: http://www.experian.ca/.

“While you can request reports from all three bureaus at the same time, one alternative would be to request reports from two bureaus. Then several weeks to several months later, you can request another report from the third bureau,” suggested Karen Pembroke, Director of Credit for PACCAR Financial. “By requesting two reports, you are more likely to find erroneous information or other discrepancies. By requesting the third report several weeks to several months later, you can then double check to be sure that any requested changes were made and how your score is affected.”

However, keep in mind that information contained in the reports from the three credit reporting agencies can differ, Pembroke said. That’s why it’s important to request a copy of your credit report from all three bureaus annually. Also remember that you are entitled to a free report whenever you’re denied a loan, insurance policy or job based on your credit report. Just ask the finance company, insurance company or employer which credit reporting bureau was used and then send the request by mail to that bureau. The state of Georgia allows consumers to get two free reports annually from each of the credit reporting agencies.

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