I have run a cash business for 8 years but find myself forced to upgrade tractors due to health. I had what i think was Dust Pneumonia last summer after bush hogging nearly 100 acres in 3 weeks. I wore masks but they did little good so i am upgrading to a cab tractor. I'm pretty set on what i am buying and it will mean i have to get wider implements. (60" to 72") My trade in would buy these implements and give me about 30% down on the tractor but we are trying to buy a house late this year and my accountant says if i want to buy a house i better lease the tractor and buy it out in 3 years. It will look better when we go for a mortgage he says. Anyways i am looking at Agco for leasing. Any other companies that are good? What are the lease rates with good to excellent credit?
Lease VS Buy................
- Thread starter mjstef
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MinnesotaEric
Super Member
Your accountant is trying to further establish your credit rating to save you money in the long run. The people who set up the ever-changing methods to determine credit score are in my backyard (Fair Isaac Corporation) which makes my state required continuing education classes on the subject, particularly good. In my case, I just took a continuing education class for state licensing, and among the many things I learned is that a 100 point difference in credit scores for a family paying on two car loans and a $200K mortgage, with all the necessary insurances, worked out to a difference of more than $800 a month between the two. Over 30 years, if the money saved was never invested and simply kept in jars, it worked out to nearly a $300,000 difference between having a 650 and 750 credit score. In other words, the difference between credit scores can make you wealthy or poor.
Methodology to determine credit score varies depending on the type of loan. Auto loan inquiries will pull higher scores than mortgages.
Credit scores are weighted by the newest data so if you pay your bills on the first off the month, your credit score will be higher in the first week of the month, than the last week of the month. In other words, your credit score creeps down throughout the month.
More than six lines of credit can negatively effect your credit. In your case, your accountant is trying to establish a line of credit.
The longer a line of credit is in existence and current, the more it positively effects your credit score.
Credit cards, or unsecured credit, have the greatest impact on improving your credit and mortgages the least impact.
Unless you miss one payment. Payments are not late until 30 days after their due date.
Missed payments hurt people with the best credit the most.
With good credit, a single missed payment can lower your credit score by 100 points.
A single missed mortgage payment can lower a person with a good credit score by up to 150 points.
A single missed payment can negatively effect otherwise good credit for a long time, years in fact if the person doesn't have to many lines of credit. Think of it this way: a person with one line of credit is 30 days late once in three years. Such a person missed one payment in 36 payments. Another person with six lines of credit was 30 days late once in 3 years. That person missed one payment in 216 payments. The 30day late hurts the person with 6 lines of credit for about one year, while the same late payment can hurt a person with just one line of credit for three, sometimes even more years.
Credit scores are increased if the monthly average balance of unsecured credit is 20% or less of available credit per line of credit (up to 50 points). Unsecured credit that uses 50% or more of available credit can lower your score by up to 50 points.
Do not shop for the best deal interest rate wise.
A credit check, a real credit check, can knock a credit score by as much as 18 points. Do not let that jerk in the finance department keep pulling your credit with different lenders "trying" to find you financing.
Credit check pull downs last 90 days.
The old an unpaid debt is, the less it effects your credit score. Do not pay up an old debt, doing so will trash your credit score by bringing forward the newest late payment
What you want to do rather than leasing, is take out a note for your tractor (unless the interest rate is dumb high) and establish payment history. The longer that note on your tractor stays current the more it will positively effect your credit score, and the lower interest you will pay on your mortgage when you apply and the lower your insurance will be, and frankly, because everybody checks credit score for employment these days, the more likely you are to be hired and promoted.
People with bad credit also get loans, but the way lenders manage their risk of default is by charging more and more interest. In Minnesota, our usury laws limit lenders to charging 22.9% interest on auto loans. The truly slimy lenders don't put liens on titles, and instead make loans as unsecured credit where our state usury laws allow them to charge up to 33.9% interest. Scary. And people are paying that too.
So what you should do is take out a loan for the tractor, with no credit expect to pay a little higher interest rate, but you would pay a little higher interest rate on a lease too, so interest rates are likely a wash.
Apply for you local bank's Visa or Master card--their real credit card. Use that credit card every month to pay for something like iTunes and don't carry the card around with you. Pay off the balance every month. The idea is to have monthly actively that never exceeds 20% of the total available credit.
In six months, get another credit card, go to Sam's club? Then get a discover card. Never use more than 20% every month of available credit and pay it off every month.
Generally, stop using debit cards. They do nothing to help improve your credit, and even though the banks say they'll back you on identity theft, they are not legally obligated to do so. Use cash, or if you're disciplined to not overspend that 20% limit, do use a credit card.
Getting up to a 700 credit score will be easy for you doing these things I outlines. Getting higher credit, just means doing the same thing for a longer period of time. This is because it takes up to 10 years of good credit to get scores into the 800s.
Unless you are blessed.
By blessed, I mean you know somebody (mom and dad?) who already have excellent credit and you have no negatives or derogatory remarks on your credit report. People with awesome credit can convey their line of credit history over to people they put on their own lines of credit as either associate users or as fellow owners of the credit account. Doing so is a very good strategy to shoot a younger person's credit up very quickly, but it is risky for the person with the good credit because the young person may not share their own discipline at managing money.
Any questions?
Otherwise, good luck.
Eric
Last edited:
whiz
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Awesome advice, Eric! This should be a sticky on the forum.
Eric, Last i checked i was at 725. This was at the 1st of the year. I say i run a cash business which is maybe not truthful. I have a Lowes AR Business card paid in full every month and a TireRama card paid within the terms (always no interest for 6 months.) for tires for all my trailers and trucks. I have no gas or credit cards. What i mean by a cash business is the $100,000 worth of equipment & trucks i have purchased in the last 4 years has been with cash. We recently lost a big government contract that was a cash cow so i let go of all my contract labor and my personal income has not changed. What my accountant said is i would qualify for the home we are currently renting if i was to lease the tractor but if i was to buy it on a note, there would be too much consumer debt. (i would have to run the tractor on my SS# as my DUNS is not well established) I guess the solution is to have my S-Corp pay me more so my income is higher...............
MinnesotaEric
Super Member
Mjstef,
Your two lines of credit and payment history has provided you with a credit score that was just a few years ago considered good credit. Given what you've shared, I believe I see why your accountant wants you to add a third credit line. Up until 2008-09, good credit by major, bank mortgagers was considered to be 720 and higher--but now, without anybody being told by lenders, the new normal is 740ish and higher. In other words, your credit score needs to continue to rise higher.
If you have not done so, start making the minimum payment plus one dollar on your TireRama card. If no payment is required for 6 months, send them one dollar every month.
Why?
Because your credit score calculates based on your ability to pay and paying ahead ups your score. This is true wether you pay off your entire debt, or merely one dollar more than the minimum required payment. Nevertheless, do not exceed the 20% average monthly available credit threshold if you can, and certainly do not cross the 50% threshold.
Since there is feast and famine in self-employment, if you have not done so already, pay yourself regularly in a set amount, and pay yourself first. Self employment income and some types of 1099 income is considered to be only 75% of its face value in comparison to W2 income. In other words, to a lender and their underwriting, insofar as determining loan to value in relationship to income, you only "make" 75% of what you show on your tax returns. Starting a regular payment, one that your company can afford will show in three years time, you are a master of cash-flow management. You'll have 3 years of pay stubs, and three years of tax returns to back this up. Up your own pay only as you can afford to pay yourself and cross periods of famine, and still have operating capital to fund your company's business expenses.
Leasing wise, do you know what table your accountant is planning to use to expense on your Schedule C the cost of leasing? Regardless, you should ask your accountant what the benefit is of leasing over expensing on your Schedule C? This way you totally own the reason. Also, is your accountant depreciating the 100K in equipment you bought outright with cash?
What your accountant may have said is true, that you would carry too much consumer debt, which is why I've been sharing stuff about positioning yourself to have awesome credit in three years.
Your two lines of credit and payment history has provided you with a credit score that was just a few years ago considered good credit. Given what you've shared, I believe I see why your accountant wants you to add a third credit line. Up until 2008-09, good credit by major, bank mortgagers was considered to be 720 and higher--but now, without anybody being told by lenders, the new normal is 740ish and higher. In other words, your credit score needs to continue to rise higher.
If you have not done so, start making the minimum payment plus one dollar on your TireRama card. If no payment is required for 6 months, send them one dollar every month.
Why?
Because your credit score calculates based on your ability to pay and paying ahead ups your score. This is true wether you pay off your entire debt, or merely one dollar more than the minimum required payment. Nevertheless, do not exceed the 20% average monthly available credit threshold if you can, and certainly do not cross the 50% threshold.
Since there is feast and famine in self-employment, if you have not done so already, pay yourself regularly in a set amount, and pay yourself first. Self employment income and some types of 1099 income is considered to be only 75% of its face value in comparison to W2 income. In other words, to a lender and their underwriting, insofar as determining loan to value in relationship to income, you only "make" 75% of what you show on your tax returns. Starting a regular payment, one that your company can afford will show in three years time, you are a master of cash-flow management. You'll have 3 years of pay stubs, and three years of tax returns to back this up. Up your own pay only as you can afford to pay yourself and cross periods of famine, and still have operating capital to fund your company's business expenses.
Leasing wise, do you know what table your accountant is planning to use to expense on your Schedule C the cost of leasing? Regardless, you should ask your accountant what the benefit is of leasing over expensing on your Schedule C? This way you totally own the reason. Also, is your accountant depreciating the 100K in equipment you bought outright with cash?
What your accountant may have said is true, that you would carry too much consumer debt, which is why I've been sharing stuff about positioning yourself to have awesome credit in three years.
Eric,
Thanks for the help. All equipment has been depreciated except for rthe new snowplow i bought last fall. I pay myself a "reasonable salary for my industry" and take a draw every few months on top of my salary SS and Medicare free. I have a lot of faith in my accountant. He has been an EA for 20 years and a CPA before that. He's in his 70's now and works part time but i get a lot of bang for my buck.
As far as the credit score scam, That's just what it is. I have a good friend who is a Millionaire. He has NEVER had a credit card or borrowed money for anything. If he want's something he writes a check. He is VERY successful.(sold a large farm 10 years ago for 2.5M) In a way i wish i would have started the way he did as the intrest i paid in 20 years before i saw the light is staggering!!! He went to buy his wife a new car a few years back ($48,000) and as he pulled his checkbook out the sales manager said, "keep your $$$ in the bank. We have 0% for 36 months!" He applied and was denied. When he went to write the check, the sales manager asked "is it good?" Kid was to young to understand our messed up system. Yet the guy with 4 credit cards and a mortgage in debt up to his eyeballs would have no problem getting the loan! Who's the better risk???
Thanks for the help. All equipment has been depreciated except for rthe new snowplow i bought last fall. I pay myself a "reasonable salary for my industry" and take a draw every few months on top of my salary SS and Medicare free. I have a lot of faith in my accountant. He has been an EA for 20 years and a CPA before that. He's in his 70's now and works part time but i get a lot of bang for my buck.
As far as the credit score scam, That's just what it is. I have a good friend who is a Millionaire. He has NEVER had a credit card or borrowed money for anything. If he want's something he writes a check. He is VERY successful.(sold a large farm 10 years ago for 2.5M) In a way i wish i would have started the way he did as the intrest i paid in 20 years before i saw the light is staggering!!! He went to buy his wife a new car a few years back ($48,000) and as he pulled his checkbook out the sales manager said, "keep your $$$ in the bank. We have 0% for 36 months!" He applied and was denied. When he went to write the check, the sales manager asked "is it good?" Kid was to young to understand our messed up system. Yet the guy with 4 credit cards and a mortgage in debt up to his eyeballs would have no problem getting the loan! Who's the better risk???
MinnesotaEric
Super Member
Mjstef,
I have made my living waging war for and against companies and nation-states using faith-based weapons of warfare that most people call money.
Money has no worth whatsoever except for what value we assign to it. We could buy and sell with grass clippings if only we could find a guy who assigns value to grass clippings.
The primary reason we assign value to our money is that our Congress proposed a bill that the Senate passed and the President signed into law that says we must accept the dollar as a medium of exchange for all debts public and private. The secondary reason we assign value to money is that everybody else seems to value it.
Yet when enough people are of little faith, our dollar devalues, and we need more of them to buy the same things.
And when our faith grows strong, we need fewer dollars to buy those same things.
Thus we understand our money is in fact, faith based.
In God we trust.
Anyway, the world is far more goofy than most people imagine.
I'll reserve my remarks about our credit system other than to say that like our fractional reserve money system, it works for the largest amount of people and can be used for one's benefit if well understood, and that it preys upon the poor and under-informed. Judgment will come, but not until the parousia.
I have made my living waging war for and against companies and nation-states using faith-based weapons of warfare that most people call money.
Money has no worth whatsoever except for what value we assign to it. We could buy and sell with grass clippings if only we could find a guy who assigns value to grass clippings.
The primary reason we assign value to our money is that our Congress proposed a bill that the Senate passed and the President signed into law that says we must accept the dollar as a medium of exchange for all debts public and private. The secondary reason we assign value to money is that everybody else seems to value it.
Yet when enough people are of little faith, our dollar devalues, and we need more of them to buy the same things.
And when our faith grows strong, we need fewer dollars to buy those same things.
Thus we understand our money is in fact, faith based.
In God we trust.
Anyway, the world is far more goofy than most people imagine.
I'll reserve my remarks about our credit system other than to say that like our fractional reserve money system, it works for the largest amount of people and can be used for one's benefit if well understood, and that it preys upon the poor and under-informed. Judgment will come, but not until the parousia.
Gary Fowler
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I have never understood the reasoning behind willingness to loan more money to someone up to their eyeballs in debt with no way to pay for all they owe being less of a credit risk than someone who owes nothing, has no bad debt etc. Are bankers that stupid or is there safety guarantees from the government that make the loan good regardless of payment or not? I don't think they are stupid, but we as consumers are the stupid ones for putting up with such foolishness. The truly good money managers pay the bills for those who don't.
