A Former Car Salesman Explains Why Good Credit Is Your Best Weapon at the Dealership

I used to sell cars at a Buy Here Pay Here in a small beach town in Florida. For those of you who have never heard of a Buy Here Pay Here, they’re a little different than a regular car dealership. At a regular dealership, the customer has two options. They can come in with a draft or pre-approved financing from their bank or credit union, or they can fill out a credit app at the dealership and get approved with one of the dealer’s lenders, such as Ally, Capital One, GM Financial, or whoever. At a Buy Here Pay Here, the dealership is the bank. Customers come in, get approved for financing, then make payments to the dealership.

Buy Here Pay Heres exist for one reason: to serve people whose credit is so bad, they can’t get financing anywhere else. These customers pose too great a risk for the average lender. For that reason, a Buy Here Pay Here charges extremely high interest rates. In some states, over 30 percent is perfectly legal.

As a customer of a Buy Here Pay Here, you don’t get to choose what kind of car you want. The dealer tells you which cars you qualify for, and you have to pick one. Don’t like dark gray PT Cruisers? Sorry, that’s all you qualify for. It might have 100,000 miles on it and have a bad Carfax, but hey, at least you’re driving.

If you don’t pay on time, a Buy Here Pay Here will send someone to snatch your car out of your driveway. Some places even have “kill switches” installed in their cars, and if you’re five minutes late on a payment, they’ll flip the switch and your car stops running-even if you’re on the freeway doing 65 mph. How cool is that?

The Customer I’ll Never Forget

But Buy Here Pay Heres actually do help some people. I’ll never forget one particular customer. I’ll call her Sarah. She lived in Parker, which was a small town just down the road. Her last car had been repoed a year before, when health problems caused her to fall behind in her payments. Since then, Sarah had been walking from Parker to her job at the Walmart Supercenter on the beach, a distance of 15 miles-one way. Thirty miles round trip. She made this journey five days a week, day or night, in blistering heat or driving rain. It didn’t matter. She had three kids to feed.

But Sarah was smart. She started putting money away for her next car. After she had saved $2,000, she came to see me and got approved on a used car. I was incredibly impressed by this woman’s fortitude and her determination to get her life back together. The last time I heard, she was never late on a payment and now drives a new car.

Why am I telling this story? Because 99 percent of the advice out there, whether it’s on YouTube or in books or magazines, focuses on the wrong thing. It all focuses on “How to Beat the Dealer.” How to play the game better than the salesman. The self-appointed experts all want to teach you clever tricks to outsmart us.

But your greatest power doesn’t lie in being tricky or threatening to walk. It’s your credit.

The Real Secret to Getting a Great Deal

People with the best credit get the best deals. Every time. It’s just that simple.

People with bad credit pay higher prices and more interest. They’re forced to finance for longer terms. They’re upside down in their trades, which leads to having to put more money down. And they spend more time at the dealership, waiting for finance to get them approved. They get turned down by most lenders, which drops their score even more. Worst of all, their choices of what kind of vehicle they can buy are severely limited.

By contrast, a person with excellent credit has much greater power and control throughout the entire process. They can buy whatever they want, and they know it. They’re usually in no rush and are immune to pressure. They can afford more expensive vehicles, they qualify for special rates, they are seldom upside down in their trades, and they spend less time in the dealership. Best of all, they have freedom of choice. They aren’t forced to settle for the 10-year-old Dodge Avenger with 100,000 miles.

The Math Doesn’t Lie

Let me give you a concrete example. Let’s say you’re buying a $35,000 SUV and have excellent credit (700 Beacon or above). The manufacturer is offering 2.9 percent, which you qualify for. Your payment is $627 for 60 months. After five years, you will have paid a total of $37,620 for your SUV, only $2,620 over the selling price. Not bad.

Now, suppose your credit isn’t the greatest. You don’t qualify for 2.9 percent. The best rate you can get is 9.9 percent. In that case, your payments jump to $742 a month, and after five years you will have paid $44,520 for your SUV. That’s $9,500 more than the total selling price and $6,900 more than the person with good credit paid.

What happens if your credit is really bad? The best rate you may be able to get is 22 percent. Your payment grows to a whopping $985 a month, and you end up paying $59,100 for that SUV, $21,480 more than the person with good credit paid. That’s enough interest to pay for a whole second car. All because of bad credit.

How to Build Better Credit

So how do you acquire this superpower called good credit? Do you have to get bitten by a radioactive accountant?

Fortunately, no. The first thing to realize is good credit doesn’t happen overnight. It takes time. In my opinion, you should start building it as early as you legally can. When you turn 18 (or 19, or 21, depending on the state), go to a local bank or credit union and get some kind of small, short-term loan-maybe $2,000 over two years-and pay it off over time. That’s what good credit is based on: consistent, on-time payments made over time.

Next, get a secured credit card. But don’t use it very much. Don’t max it out and pay the minimum every month. Only use about a third (30 percent) of your available credit at any given time and try to pay more than the minimum every month. This tells anyone looking at your credit that you’re living within your means and not overextending yourself. You have credit available for emergencies.

You can also ask a trusted family member with good credit to add you to one of their accounts so you can piggyback off their history. But be careful. If you screw up and fall behind it will hurt their credit, as well.

Finally, keep old accounts open, even if you’re not using them anymore. The length of your credit history matters.

Good Credit Needs Maintenance

If you’re older and you already have good credit, it’s important to maintain it. Don’t assume it will always be there. A lot of people with money in the bank and good credit become overconfident and start paying cash for everything. Even if you can afford to pay cash for a car, don’t. Always finance a portion of it. This will help you maintain your credit. If you don’t finance anything for 10 years, your credit history grows thin, and you can become what we in the car business call a ghost-someone with no credit history, just like an 18-year-old starting out. You don’t want that.

Keep in mind, I’m just a car salesman. If you want financial advice, seek out an expert.

Don’t Sweat the Small Stuff

I wrote this article because so many people come into dealerships and spend a couple of hours beating up the salesperson over $200, not realizing they’ve already left the biggest pile of money on the table thanks to their poor credit. That $200 is nothing when you’re giving up $6,900 in interest on the back end. If you improve your credit, it will help you in every area of life, not just buying cars. And hopefully, you’ll never have to walk to work in the rain.

One Final Thank You

This will be my last Car Salesman Confidential, at least for the foreseeable future. It has been a privilege writing for MotorTrend. It never would have come about if not for the efforts of several individuals, starting with Scott Evans and Michael Floyd. If they hadn’t given me a chance way back in 2012, this column never would have happened. I also want to thank Ed Loh for resurrecting CSC last year, and the hard work of Phillip McRae, Erik Johnson, Brian Vance, and MotorTrend’s great illustrator, Ryan Lugo. I would also like to thank Joey Hobson, the general manager of Lithia Springs Ford, for his encouragement. And finally, I want to thank the most important people of all-the readers. They’re the ones who have really made CSC a success.