Last year, Americansdrove their vehicles wellover 70 million tripsaround the world.

Credit: Important to the vehicle buying process.

FMCCEDBK10506FC 18896 10/05

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Having good credit canreally take you places.

Understanding credit. 1

Using credit. 2

Establishing credit. 3

Deciding who gets credit. 4

Maintaining credit. 5

Protecting credit. 6

Affording credit. 7

Budgeting for credit. 8

Examining your credit report. 9

Reviewing your credit score. 10

Lending differences. 11

Buying vs. leasing. 12

Buying a vehicle with credit. 13

Knowing your rights. 14

Signing the contract. 15

Summing up credit. 16

Learning the language: contract terms. 17-18

Learning the language: credit terms. 19-20

Setting goals. 21

Table of Contents.

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Understanding credit.Obtaining a new vehicle is one of life’s most exciting experiences.

While paying cash for a new vehicle is certainly an option, having good

credit to finance or lease a new vehicle makes doing so one of life’s

most gratifying experiences.

Using credit.Having credit is a great convenience. With good credit you can buy large items, such as homes and

vehicles, without spending years saving up cash for the entire purchase price.

Generally, credit should be used only in situations where the useful life of your purchase extends for the

entire term. For example, compare a vacation with a vehicle. An

essential tool in today’s world, a vehicle has long-term benefits.

It provides daily transportation to work, school and shopping

throughout the vehicle’s entire life. A vacation might be great fun

while it lasts, but it only offers short-term benefits—use credit

and you may be paying for it long after its benefits have worn off.

In cases of emergency, credit can make the difference between

comfort and discomfort. For example, credit could be used in

case your home’s air conditioner needs to be replaced on a

100-degree day.

Credit, then, is best used for purchases with long-term benefits,

like vehicles, homes or emergencies, and is less suitable for

purchases with short-term benefits, like entertainment.

60% of intersectioncrashes could beavoided if drivers hadanother half-second to react.

Imagine what a few minutesof reading this brochure cando for your credit.

Over the next few pages, we’ll help you first understand how credit is used,

and then how it plays a significant role in purchasing a vehicle. We’ll also

provide some valuable information to help you make informed decisions as

you engage in credit transactions. Even if you’re already credit savvy, or

simply need to improve your credit, this guide can still help you. There are tips

on how to help protect your credit from identity theft on page 6. There are also

additional credit resources on page 16.

1 2

In most cases, to borrow money you need to have good credit. Having good credit simply means you’ve repaid what you’ve

borrowed according to the agreement between you and your lender. If you have bad or damaged credit, you may still qualify to

borrow, though at a higher rate. The purpose of this guide is to provide you with credit information that helps you understand

your financial commitments so they don’t detract from the excitement of acquiring a new vehicle. Approaching credit and financing

with the same care and thought as you would put into selecting a vehicle will make driving it that much more satisfying.

Establishing credit.Establishing credit is an important first step in financing or leasing a vehicle. If you have

no credit history and have difficulty obtaining credit, one way to obtain credit is to have a

co-signer included on your credit application. Please keep in mind, however, the co-signer

is legally obligated to make any and all payments that you cannot.

If you apply with a co-signer,

the lender also considers the

co-signer’s credit. If your co-

signer has good credit, it’s likely

you’ll both be approved. Once

approved, make payments on

time to keep up your end of the

agreement. If you do this, you

will start to build a favorable

credit rating for yourself in

no time.

Another way to establish credit is to obtain a “secured” credit card. With a secured

credit card, you deposit funds into a bank account equal to the card’s credit limit. These

funds provide security for the credit card issuer, thus allowing you the opportunity to

establish a good credit rating.

Deciding who gets credit.Lenders, such as banks and credit card and vehicle finance companies, generally consider

the following factors to determine if you qualify for credit: income, level of education, how long

you’ve lived at your present address, assets, checking and savings account balances, your

promptness in paying bills, length of employment, and how much you owe. These factors fit

into three categories, known as the Three Cs of Credit: character, capacity, and collateral or

capital. This information comes from both your credit application and your credit report.

Character—Creditors evaluate your character through objective factors such as length of

residency and employment, and also by examining your existing credit relationships with

credit cards, bank loans, mortgages, etc.

3 4

Capacity —The amount of debt you

can realistically repay given your income.

Lenders look at your living expenses,

current debts and the additional payments

that the proposed new obl igat ion

would require.

Collateral or Capital—The security,

or investment, that supports the credit

obligation. Lenders, in some instances,

want to know the current available assets of

the borrower, such as real estate, savings or

investments, that could be used to repay

debt if income becomes unavailable.

Maintaining credit.Once you have established credit, it is important to build a

favorable credit rating. If you are building your credit rating

with a credit card, use it conservatively so you can be sure

to make all your payments easily and on time.

Protecting credit.

Keep in mind that careless use of credit cards,

secured or unsecured, is how some consumers

get into trouble when using credit. It’s hard to

resist the allure of buying now and paying later.

When using a credit card, it’s important to

remember to completely understand the terms

(annual percentage rate [APR], credit limit,

repayment schedule, etc.), or you could quickly

get in over your head and put your future credit

in jeopardy.

If something happens and you are unable to make your

payment before the due date, contact your lender to

help minimize the risk of harming your credit. Most

lenders understand, and will work with you to help find

a solution.

A serious mistake some borrowers make when

problems arise is to avoid their lender. Attempting to

evade responsibility for the debt may force lenders to

take legal action in order to protect their interests.

Ways to minimize your risk of being victimized:� Don’t use the same passwords or PINs for all of yourcredit cards and bank accounts � Don’t leave mail in yourmailbox overnight � Shred unwanted documents thatcontain your personal information � Obtain and review afree copy of your credit report annually � Do not give outyour Social Security number unless absolutely necessary

Ways an identity thief can gain access toyour personal information:� Stealing mail, wallets and purses containing identification � Fraudulently posing as a landlord or employer � E-mailand phone scams � Hacking into electronic files

1

2

3What to do if you have been victimized:� Contact the three major credit bureaus (please refer topage 9 for list) and place a fraud alert on your credit reports� Notify your creditors � Close the accounts you feel havebeen tampered with � File a report with your local policedepartment � Contact the Federal Trade Commission(FTC) at consumer.gov/idtheft or (877) 438-4338

Every 79 seconds,a thief stealssomeone’s identity.

Learn how to protectyours in about two.

5 6

Affording credit.There are two steps you should take before financing a large item,

such as a vehicle, to ensure that you are using credit wisely:

The calculations on the following

page can help you determine if

you can take on a new payment. If

your Total Income is greater than

your Total Expenses, the debt

being considered is affordable.

If your expenses exceed your

income, and you can’t make the

payment without cutting into your

savings or emergency funds, you

should reconsider the amount

being borrowed.

� Prior to purchasing, it is important to researchfinancing options, rates and terms. In somecases, you may be able to negotiate rates andother aspects of the transaction

� Calculate how much monthly cash you haveavailable to make the payments generated by existing obligations and the additionalobligations created by new purchases

8

Fixed Expenses

Rent/Mortgage $__________________

Property taxes/Insurance $__________________

Trash collection $__________________

Car payment $__________________

Car insurance $__________________

Other loan payments $__________________

Health insurance $__________________

Day care/Elder care $__________________

Flexible Expenses

Savings $__________________

Gas/Oil $__________________

Electricity $__________________

Water $__________________

Telephone $__________________

Food $__________________

Transportation/Gas $__________________

Car maintenance $__________________

Education $__________________

Personal expenses $__________________

Other $__________________

Total Expenses $__________________

Wages $__________________

Public assistance $__________________

Child support/Alimony $__________________

Interest/Dividends $__________________

Social Security $__________________

Other $__________________

Total Income $__________________

Budgeting for credit.My Income My Expenses

7

Examining your credit report.Your credit report includes your name, current and previous

addresses, and other identifying information reported by

creditors. It also includes public record items obtained from

local, state and federal courts. Your credit report will also

indicate which accounts, if any, creditors have turned over to a

collection agency.

Since your credit report contains such valuable information, it’s a

good idea to check it for errors periodically. There are three major

credit bureaus through which you can obtain a copy of your

credit report.

They are:� Equifax, P.O. Box 105873, Atlanta, GA 30348, (800) 685-1111� Experian, P.O. Box 2002, Allen, TX 75013, (888) 397-3742� TransUnion, P.O. Box 1000, Chester, PA 19022, (800) 888-4213

On average, it takesconsumers over 1 yearto find their credit hasbeen tampered with.

When’s the last timeyou checked yours?

You can also visit annualcreditreport.com or call

(877) 322-8228 to receive credit reports from one or all

three credit bureaus.

If you discover an error, take steps to correct it right

away. The longer the error remains on your credit report,

the more damage it could do.

10

It is recommended that you check your credit report on a regular

basis. If you do request your credit report, and you find your credit

history is unfavorable, there are some ways you can improve it:

� Make your payments on time; the longer you pay on time the better

� If you have missed payments, get current and stay current� Pay off debt instead of transferring it from one credit

card to another� Keep balances on credit cards low� Apply for and open new credit accounts only as needed

Please note that closing a delinquent account does not

make it go away. A closed account will still show up on your

credit report, and may factor in to a lender’s decision.

*Percentages may vary for each major credit bureau.

Reviewing your credit score.In addition to your credit report, you also have credit scores maintained by each of the three major credit bureaus. Your credit score

is your credit rating. You typically have three credit scores, one for each major bureau. Each of the three major bureaus has its own

unique name for your credit score. Your credit score may impact credit availability and may determine what interest rate you will

receive. Credit scores are based on various credit data found in your credit report. This data can be grouped into five different

categories.* The categories listed to the right affect your credit score.

They also have percentages indicating their importance to lenders.

9

Payment History

Length of Credit History

New Credit

Amounts Owed

Types of Credit Used

35%

15%

10%

10%

30%

Lending differences.Direct lending — Direct lending is a direct

transaction between the borrower and the lender,

without a third party (i.e., automotive dealer) getting

involved in the vehicle financing process.

With automotive direct lending, the buyer

(borrower) chooses a vehicle, then goes directly

to a lender or other finance source (bank, credit

union, etc.), completes a credit application and

negotiates rates and terms. The buyer then

returns to the dealer and the finance source

funds the purchase of the vehicle. The buyer then

makes payments to the finance source.

Indirect lending—When a buyer and a retailer enter into a finance

contract where the buyer agrees to pay the amount financed over the term

of the contract, plus an agreed-upon finance charge. The retailer then sells

the contract to a bank, credit company or other finance source. The buyer

will send the required payments to the finance source. This type of financing

is commonly used in motor vehicle transactions and is often referred to as

“dealership financing.”

For the vehicle buyer, indirect financing offers a number of advantages:

� Special offers and programs — any current manufacturer’s

incentive or low-rate programs are made available to you through

the dealership

� Access to multiple finance sources — a typical dealership

may have a relationship with dozens of different finance sources,

thus increasing your chances of obtaining suitable financing

� One-stop shopping — allows you to choose your vehicle and

secure financing—all at the dealership

Buying vs. Leasing.The decision to buy or lease a

vehicle is often based on individual

preferences, driving habits and

mileage requirements.

For example, if you’re thinking of

modifying or personalizing your

vehicle, it’s best to buy it.

Answer the following questions in

the chart to find out whether buying

or leasing is right for you.

Over 17 million new vehicles are acquired each year.

How will you acquireyour next vehicle?

Characteristics

�Miles driven per year?

� Like to modify the vehiclewith alarm, paint, speakers?

�Want to extend paymentsover more than two to three years?

�Want a new car everytwo to three years?

� Lowest payment? (for the same term)

� Resale value important?

Indicate Purchase

over 15,000

yes

yes

no

no

yes

Indicate Lease

under 15,000

no

no

yes

yes

no

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Buying a vehicle with credit.There are many things to consider when financing or leasing a vehicle. Do you have credit?

If so, is it in good shape? Can you afford a vehicle payment? How will insurance affect your

payment? Here is a list of things to expect when going through the vehicle buying process.

Check them off as you go:

At the dealership:Bring proper documentation (i.e., driver’s license, trade-in, title, etc.)Know what interestrates and specialincentives are available.This will assist you in negotiating the best possible APRStay within your price rangeReview the terms and conditions of alldocuments carefullyprior to signing

After leaving the dealership:Make sure you maintain yourvehicle’s insuranceMake payments on time or early to avoid damaging your creditTake good care of your vehicle —this will help you maximize thevehicle’s life and increase itsresale value (and avoid potentialexcess wear and use charges inthe case of a leased vehicle)

1 2 3Before visiting the dealership:

Establish credit, if you haven’t alreadyEvaluate your financial situationReview your credit history and credit availabilityDetermine what you can affordDetermine if you will be trading in a vehicle and if you will be making a down paymentConsider how the cost of vehicle insurance will affect the vehicle’s affordabilityResearch maintenance and fuel expenses

Knowing your rights.Borrowers have numerous protections under the law. Here is a short list of federal laws

designed to protect you:

� Equal Credit Opportunity Act� Truth in Lending Act� Fair Credit Reporting Act� Fair Debt Collections Act

These rights cover a range of practices—from the credit application, to the creditor’s

obligations if the application is turned down, to collection practices. Information about these

rights can be obtained from a legal advisor or from the Federal Trade Commission (ftc.gov).

Some state laws may provide you with

additional rights. For information on these

laws, contact your state’s consumer

protection agency or Attorney General’s

office (Web site:www.naag.org).

Once the finance agreement for your

vehicle has been signed, you have the

legal obligation to make the regular

payments according to the schedule in

the agreement.

1413

Summing up credit.With good credit, you won’t have to miss out when opportunity knocks on your door. Not

only will you have the ability to acquire the things you need today, such as homes and

vehicles, you’ll also have a strong foundation for the things you may want tomorrow.

Financing a vehicle is one of the most significant financial transactions you can

undertake. We’re committed to giving you the products and services you deserve.

Understanding credit and how it works will give you the power to get the best deal for

yourself. Be sure to ask your dealer about available financing options and terms as well

as current rates.

We want you to have the good credit you need to get the vehicle you want. Log on to

fordcredit.com/creditsense for additional information on credit and how to use

it wisely.

� To receive a free annual credit report, visit annualcreditreport.com� For more information about credit, contact the Federal Deposit Insurance

Corporation (FDIC) at fdic.gov, the National Automobile Dealers Association atnada.org, or the Federal Trade Commission at ftc.gov/credit or (877) 382-4357

Signing the contract.Credit transactions are legal contracts between lenders and borrowers. The terms of the

contract are spelled out explicitly in the finance agreement. This agreement contains all of

the transaction details, including the total amount financed, the interest rate charged and the

required repayment terms.

16

Here are a few things to remember when reviewing the finance agreement:� The agreement should not be

signed if there are blank spaces, which could be filled in later

� Confirm the interest rate/APR being charged

� The APR in the contract should be the APR agreed upon during negotiations

� The amount financed and items financed (vehicle, insurance, extended warranty) are all as agreed

The finance agreement is the single

most important document in a vehicle

credit transaction. Once signed, it is

legally binding. It is very important that

you read the contract and fully understand

and agree with all of the terms.

15

Making your payments on time is very important because:� Payments are reported to

credit bureaus that storehistorical data on howindividuals pay their debts

� The stored data is provided to creditors when additionalcredit applications are made

� A good payment history gives the borrower moreoptions to access credit at competitive rates

� If payments are missed orhabitually late, the borrowerwill have fewer options forobtaining credit

Learning the language: contract terms.Acquisition Fee—An acquisition

fee is a charge paid by the lessee to

lessor that helps cover the cost of

acquiring and servicing the contract.

This fee is either paid up front or

included in the gross capitalized cost.

Add-On Products—These include,

but are not limited to, extended service

plans, approved dealer-installed

equipment, rustproofing and sealant

packages that are added to the total

cash price of a vehicle and included in

the amount financed.

Amount Financed—This is the

total amount of credit provided to you

and is subject to finance charges. It is

determined by the sale price of the

vehicle plus any charges for taxes, title,

license fees, service contracts—such

as an extended service plan—and any

other fees, less the down payment,

manufacturer’s rebate, or trade-in.

APR—Annual Percentage Rate is a

measure of the cost of credit expressed

as a yearly interest rate. All lenders are

required to disclose their rates as an

APR to allow consumers to make a

proper comparison.

Co-Signer—If the person borrowing

money or financing a purchase has

limited or marginal credit history, the

finance source may permit another

creditworthy person (the co-signer)

to sign the obligation and become

equally responsible.

Down Payment—The total

amount of money you pay up front

(cash, rebates and trade-in) to reduce

the amount financed.

Finance Agreement—The written

contract between the parties in a

financing transaction. The terms as

stated in this agreement are legally

binding on both parties.

17 18

Manufacturer’s Suggested

Retail Price (MSRP)—The retail

price of the vehicle as recommended

by the manufacturer—often called

the “sticker” or list price.

Security Deposit—Cash amount

collected at the beginning of the lease

as security for performance of all lease

obligations and refunded at lease-end

unless there is excess wear and use on

the vehicle or if the mileage exceeds

contract limits. Allowable charges would

be deducted before a final distribution

of the security deposit is made.

Term—The number of months you

agree to pay off the contract (loan) with

equal monthly installments (payments).

Default—A failure to meet credit

obligations as agreed.

Finance Charge—The cost of

credit expressed as a dollar amount.

This is the amount charged to the

purchaser by the lender for use

of money.

Inquiry—A creditor request for a

copy of an applicant’s credit report.

Inquiries are noted on the report.

Installment Loan—A loan

repayable in substantially equal

payments over the course of the

finance term.

Late Charge—A dollar or

percentage charge imposed by

a lender on a borrower when the

borrower fails to make a payment

within the specified period after

the payment due date.

Lease—A financial transaction

in which an individual contracts for

use of a vehicle under specific terms

such as miles driven, monthly

payment, turn-in condition at

lease-end, liability for physical

damage, and fees and penalties.

Lienholder—An individual,

partnership or corporation with

a security interest in an asset.

Secured Financing—

A form of financing in which

collateral backs the credit.

Unsecured Financing—

Financing that does not

require collateral.

19 20

Learning the language: credit terms.Bankruptcy—A legal action under

which debtors unable to pay their debts

can petition a court to either be released

from their obligations after a court has

liquidated their assets or to allow

debtors to pay a portion of their debts.

Capacity—The amount of cash the

customer has available to make the

payments on a new debt after all

existing obligations have been paid.

Character—Stability plus

willingness to pay equals a borrower’s

financial character.

Collateral—An asset that is pledged

as security for a loan or financing, such

as a vehicle. The creditor has the right

to take control of and sell the collateral

if payments are not made as agreed.

Credit Bureau—A company

that gathers data on how individuals

are paying or have paid their credit

obligations. The information is

provided to creditors when

specifically requested.

Credit History—The record of

how a person has borrowed and

repaid debts.

Credit Report—The form the credit

bureau issues containing the financial

and personal data about an individual.

Credit Score—A numerical

representation of the likelihood of

an individual meeting his or her

credit obligations, calculated using

statistical models.

Creditor—The company or person

providing (or holding) the financing

or loan. Also known as a lender or

finance source.

Creditworthiness—An individual’s

past, current and future ability to repay

debts, in most cases determined by

reviewing the individual’s credit history.

Setting goals.Now that you know how good credit can take you places, it’s time to set some financial goals to help get you where you want

to go. Use this page to write down your goals, the steps you will take to achieve them and by when you’d like to achieve

them. See example below.

Credit/financial goal:

___________________________________________

___________________________________________

___________________________________________

___________________________________________

___________________________________________

___________________________________________

Action steps:

____________________________________

____________________________________

____________________________________

____________________________________

____________________________________

____________________________________

Achieve goal by:

______________________

______________________

______________________

______________________

______________________

______________________

Finance a vehicle Establish credit Next month

21

Questions about a particular transaction should be addressed to a financial advisor or attorney. The information presented in this booklet is, of necessity, general in nature and intended to provide useful

information which will assist a consumer in shopping for, negotiating, and handling a credit transaction. It is not intended as specific legal advice applicable to a particular consumer and transaction.