FOCUS ON

FINANCES:

Preparing

For Your

Future

Whether you’re planning to continue your formal education after you graduate from high school or enter the workforce full-time, you’re 

ready to take your place among the ranks of American consumers. Learning about consumer issues like credit, identity theft, and buying 

a car – and how they can affect you – are important lessons for life. It's a great time to start!

Federal Trade Commission 1-877-FTC-HELP | ftc.gov
PAGE 2

The Federal Trade Commission

is the nation’s consumer protection agency. The FTC works to 

prevent fraudulent, deceptive, 

and unfair business practices in 

the marketplace and to provide 

information to help consumers 

spot, stop, and avoid them. You 

can contact the FTC for free 

information on a wide range of 

issues, including: 

• advertising claims

• buying, leasing and renting 

cars

• credit

• debt collection

• employment and job 

placement

• identity theft

• investment schemes

• online shopping

• scholarship scams

• sweepstakes

• telemarketing

• work-at-home schemes...

and more

To file a complaint or to get free 

information on consumer issues, 

visit ftc.gov or call toll-free, 

1-877-FTC-HELP 

(1-877-382-4357); 

TTY: 1-866-653-4261. 

Watch a new video, How to File 

a Complaint, at ftc.gov/video to 

learn more. 

The FTC enters consumer 

complaints into the Consumer 

Sentinel Network, a secure 

online database and 

investigative tool used by 

hundreds of civil and criminal 

law enforcement agencies in the 

U.S. and abroad.

Being out on your own can be fun and exciting, but it also means taking on new 

financial responsibilities. The decisions you make now about how you manage your 

finances and handle money and credit can affect your ability to get more credit in 

the future, as well as the cost of that credit. It also can affect your ability to rent or 

buy a place to live, get auto or life insurance, or sometimes get a job. 

This supplement has tools to help you make smart financial decisions. It 

explains credit, credit reports and credit scores; offers tips on how to get and maintain credit; has information about how to avoid consumer fraud and identity theft; 

and navigates the ins and outs of buying a car.

The articles were prepared by the Federal Trade Commission (FTC), the nation’s 

consumer protection agency, and the Jump$tart Coalition for Personal Financial 

Literacy, a not-for-profit organization that seeks to improve financial literacy among 

young adults. 

Everyone shops for products and services, and everyone spends money. But not 

everyone knows how to do it right. Spending money wisely usually takes skill, time, 

and experience. The FTC and Jump$tart want you to learn how to shop smart, 

manage your finances responsibly, and become a more confident consumer. 

The Jump$tart Coalition for Personal Financial Literacy

seeks to improve the personal financial literacy of young adults by evaluating 

their financial literacy; developing, disseminating, and encouraging the use of 

standards for grades K-12; and promoting the teaching of personal finance. For 

more information, visit www.jumpstartcoalition.org.
PAGE 3

First Things First: Developing a Budget

Setting Out on Your Own!

Preparing to be out on your own can be fun and exciting, but it also 

means taking on new financial responsibilities. The decisions you make 

now about how you manage your money can affect your ability to get 

credit, insurance, a place to live, and even a job.

The first step toward taking control of your financial situation is 

to do a realistic evaluation of how much money you take in and how 

much money you spend. Start by listing your income from all sources. 

Then, list your “fixed” expenses – those that are the same each 

month – like rent, car payments, and insurance premiums. Next, list 

the expenses that vary – like entertainment, recreation, and clothing. 

Writing down all your expenses, even those that seem insignificant, 

is a helpful way to track your spending patterns, identify necessary 

expenses, and prioritize the rest. The goal is to make sure you can 

make ends meet on the basics: housing, food, health care, and

insurance.

 Your public library and bookstores have information about budgeting 

and money management techniques. In addition, computer software 

programs can be useful tools for developing and maintaining a budget, 

balancing your checkbook, and creating plans to save money.

When you apply for a credit card, a personal loan, or insurance, 

a file about you is created. This file, known as your “credit report,” 

is maintained by credit reporting companies. Your report will grow to 

include information on where you live, how you pay your bills, and 

whether you’ve ever been sued, arrested, or filed for bankruptcy. Credit 

reporting companies sell the information in your report to creditors, 

insurers, employers, and other businesses with a legitimate need for it. 

They use the information to evaluate your applications for credit, insurance, employment, or renting a place to live.

Credit reporting companies collect four basic types of information 

and sell it to people who have a lawful reason to collect it. 

Identification and Employment Information

Your name, birth date, Social Security number, employer, and 

spouse’s name are noted routinely. The credit reporting company also 

may provide information about your employment history, income, and 

previous address, if a creditor asks.

Payment History

Your accounts with different creditors are listed, showing how 

much credit has been extended and whether you’ve paid in a timely 

way. Related events, like the referral of an overdue account to a collection agency, also may be noted.

Inquiries 

Credit reporting companies must maintain a record of all the creditors who have asked for your credit history within the past year, and a 

record of individuals or businesses that have asked for your credit history for employment purposes for the past two years.

Public Record Information

Events that are a matter of public record, like bankruptcies, foreclosures, and tax liens, may appear in your report. Having a good credit 

history means it will be easier for you to get loans and lower interest 

rates. Lower interest rates usually translate into smaller monthly payments. Conversely, having a bad credit history can haunt you for seven 

Lifeskills 101: Credit

To Do: A place to live.

Find the apartment listings. Choose a 

place to live and record the monthly rent on 

your budget sheet.

Groceries.

Find the food ads. Estimate the amount 

of food you will need each week and then 

multiply the cost by four to estimate your 

monthly expense. Remember to add in costs 

for non-food items, too, like shampoo, soap, 

toothpaste, and laundry detergent.

Eating Out.

Find a restaurant ad and deduct the cost 

of dinner for two plus a 20 percent tip.

Transportation.

Find the automotive section and find a 

new or used car you’d like to buy. Once you’ve 

chosen a car, add 6 percent for interest cost 

and divide it by 48 to estimate the monthly 

payment for a four year loan.

Other Expenses

Consider auto insurance, gasoline, utilities (for example, gas and electric, telephone, 

cable), cell phone, renter’s insurance, college 

tuition, clothes, haircuts, charity, a vacation, 

your daily cup of coffee, and maybe longer 

term savings to buy a home. Add a reasonable amount to your expenses for these items.

Choose five “Help Wanted” listings from 

five different categories of the classified ads. 

These should be jobs for which you are qualified. Read each job description carefully, noting the skills required for each position. Then 

make a list of your knowledge and skills to 

determine if the job might be right for you.

Using the hourly wage or yearly salary 

in one of the ads, determine how much you 

will earn each month. First, subtract 30 percent for taxes to determine your net monthly 

income. Then, create a budget of how much 

you might spend on the following, and subtract these costs from your income.

What’s your bottom line? Do you have any money left at the end of the month? If not, what expenses can 

you reduce or eliminate? Is there a way to make more money?
PAGE 4

years or more. It can affect your ability to get additional credit. And 

if you can get credit, it may be at higher rates with less than favorable terms. Negative credit also can affect your ability to get or keep a 

job. Employers often use a credit report when they hire and evaluate 

employees for promotion, reassignment, or retention. These are just a 

few reasons why it’s best to learn how to maintain good credit before a 

problem starts.

Building a Credit Report

Establishing a good credit history is easier than it may seem. You 

might apply for a credit card issued by a local store, because local 

businesses may be more willing to extend credit to someone with no 

credit history. Once you establish a pattern of making your payments 

on time, major credit card issuers might be more willing to extend 

credit to you. You might apply for a secured credit card. Basically, 

this card requires you to put up the money first and then lets you borrow 50 to 100 percent of your account balance.You also might ask 

other people who have an established credit history to co-sign on an 

account. By co-signing, the person is agreeing to pay back the loan if 

you don’t.

Keeping Your Credit Record Clean

Good credit is important, now and in the future. In most cases, it 

takes seven years for accurate, negative information to be deleted from 

a credit report. It takes even longer for bankruptcy information to be 

deleted – 10 years.

Getting Your Credit Report

The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies – Equifax, Experian, and TransUnion – to provide you with a free copy of your credit 

report, at your request, once every 12 months. The FCRA promotes the accuracy and privacy of 

information in the files of the nation’s credit reporting companies. The FTC enforces the FCRA 

with respect to credit reporting companies. 

Equifax, Experian, and TransUnion use one website, one toll-free telephone number, and one 

mailing address for consumers to order their free annual credit report. Do not contact the three 

nationwide credit reporting companies individually.

To order your free annual credit report:

• visit: annualcreditreport.com;

• call toll-free: 1-877-322-8228; or 

• mail your completed Annual Credit Report Request Form (available at ftc.gov/freereports) to: 

Annual Credit Report Request Service, 

P.O. Box 105281, Atlanta, GA 30348-5281. 

You may order your free annual reports from each of the credit reporting companies at the 

same time, or you may want to stagger your order throughout the year, providing you with a 

periodic look at your credit status.

To order your report, you’ll need to provide your name, address, Social Security number, and 

date of birth. If you have moved in the last two years, you may have to provide your previous 

address. To maintain the security of your credit file, each nationwide credit reporting company 

may ask you for some information that only you would know, like the amount of your car payment. Each company may ask you for different information because the information each one 

has in your file may come from different sources.

For more information, see “Your Access to Free Credit Reports” at ftc.gov/credit.

Credit Scoring

Businesses often use more than the information in your credit 

report when they decide whether to grant you credit. They also consider your credit score. Here’s how credit scoring works in helping 

decide who gets credit – and why. Information about you 

and your credit experiences, such as 

your bill-paying history, the number and 

type of accounts you 

have, late payments, 

collection actions, 

outstanding debt, and 

how long you’ve had 

your accounts, is collected from your credit 

application and your credit report. Using a statistical program, creditors 

compare this information to the credit performance of consumers with 

similar profiles. A credit scoring system awards points for each factor 

that helps predict who is most likely to repay a debt. A total number of 

points – a credit score – helps predict how creditworthy you are – that 

is, how likely you are to repay a loan and make the payments when 

they are due. The higher the points on your credit score, the better it is. 

A low score may mean you will be turned down for credit, or have to 

pay more for credit in the form of higher interest rates. 

For more information, see “Need Credit or Insurance? Your Credit 

Score Helps Determine What You'll Pay” at ftc.gov/credit. 

Sample Form. Download actual form at:

ftc.gov/freereports
PAGE 5

Paying with Plastic: What a Difference a Word Makes

Credit card – You can use a credit card to buy things and pay for 

them over time. But remember, buying with credit is a loan – you have 

to pay the money back. And some issuers charge an annual fee for 

their cards. Some credit card issuers also provide “courtesy” checks to 

their customers. You can use these checks in place of your card, but 

they’re not a gift – they’re also a loan that you must pay back. And if 

you don’t pay your bill on time or in full when it’s due, you will owe a 

finance charge – the dollar amount you pay to use credit. The finance 

charge depends in part on your outstanding balance and the annual 

percentage rate (APR). 

Charge card – If you use a charge card, you must pay the balance 

in full each time you get your statement.

Debit card – This card allows you to make purchases by accessing the money in your checking or savings account electronically.

The Fine Print

When applying for credit cards, it’s important to shop around. 

Fees, interest rates, finance charges, and benefits can vary greatly 

among card issuers. And, in some cases, credit cards might seem like 

great deals until you read the fine print and disclosures. When you’re 

trying to find the credit card that’s right for you, look at the:

Annual percentage rate (APR) – The APR is a measure of the 

cost of credit, expressed as a yearly interest rate. It must be disclosed 

before your account can be activated, and it must appear on your 

account statements. The card issuer also must disclose the “periodic 

rate” – the rate applied to your outstanding balance to figure the 

finance charge for each billing period.

Some credit card plans allow the issuer to change your APR when 

interest rates or other economic indicators – called indexes – change. 

Because the rate change is linked to the index’s performance, these 

plans are called “variable rate” programs. Rate changes raise or lower 

the finance charge on your account. If you’re considering a variable 

rate card, the issuer also must tell you that the rate may change and 

how the rate is determined. 

Before you become obligated on the account, you also must 

receive information about any limits on how much and how often your 

rate may change.

Grace period – The grace period is the number of days you have 

to pay your bill in full without triggering a finance charge. For example, 

the credit card company may say that you have 25 days from the 

statement date, provided you paid your previous balance in full by the 

due date. The statement date is on the bill. 

The grace period usually applies only to new purchases. Most 

credit cards do not give a grace period for cash advances and balance 

transfers. Instead, interest charges start right away. 

If your card includes a grace period, the issuer must mail your bill 

at least 14 days before the due date so you’ll have enough time to 

pay.

Annual fees – Many issuers charge annual membership or participation fees that often range from $20 to $75. 

Transaction fees and other charges – Some issuers charge a fee 

if you use the card to get a cash advance, make a late payment, or 

exceed your credit limit. Some charge a monthly fee whether or not 

you use the card.

Customer service – Customer service is something most people 

don’t consider, or appreciate, until there’s a problem. Look for a 

24-hour toll-free telephone number.

Unauthorized charges – If your card is used without your permission, you can be held responsible for up to $50 per card. If you report 

the loss before the card is used, you can’t be held responsible for any 

unauthorized charges. If a thief uses your card before you report it 

missing, the most you’ll owe for unauthorized charges is $50.

To minimize your liability, report the loss as soon as possible. 

Some issuers have 24-hour toll-free telephone numbers to accept 

emergency information. It’s a good idea to follow-up with a letter to 

the issuer – include your account number, the date you noticed your 

card missing, and the date you reported the loss.

To Do:

Look for credit card offers. Make a chart with a 

column for each offer, and note the following under 

each:

•What is the annual percentage rate (APR)? 

•Is there an introductory rate? If so, how long does 

it last? What will the APR be after that period?

•Is the APR for cash advances different than the 

APR for purchases? If so, what is the APR for 

cash advances?

•Does the card have a cash back feature? If so, how 

does it work?

•Is there an annual fee? If so, how much is it?

•What is the late payment fee?

•What happens if you default? Will your interest rate 

increase? If so, what will the new rate be?

•What other important information is provided?

For more information, see “Choosing a Credit Card: 

The Deal is in the Details” at ftc.gov/credit.
PAGE 6

Keep in mind that credit card interest rates and minimum monthly 

payments affect how long it will take to pay off your debt and how 

much your purchase will cost you over time. Here are two examples:

Suppose when you’re 18, you charge $1,500 worth of clothes and 

DVDs on a credit card with a 19 percent interest rate. 

If you repay only the minimum amount each month, and your 

minimum is 4 percent of the outstanding balance (the lowest amount 

permitted by some issuers), you’ll start with a $60 payment. You’ll be 

more than 26 years old by the time you pay off the debt. That’s 106 

payments, and you will have paid more than $889 extra in interest. 

And that’s if you charge nothing else on the card, and no other fees are 

imposed (for example, late charges). 

If your minimum payment is based on 2.5 percent of the outstanding balance, you’ll start with a $37.50 payment. You’ll be over 35 

years old when you pay off the debt. That’s 208 payments, and you 

will have paid more than $2,138 in interest, even if you charge nothing else on the account and have no other fees.

Keep Credit Card Use Under Control

Whether you shop online, by telephone, or by mail, a credit card 

can make buying many things much easier. But when you use a credit 

card, it’s important to keep track of your spending. Incidental and 

impulse purchases add up. When the bill comes, you have to pay 

what you owe. Owing more than you can afford to repay can damage 

your credit rating. Keeping good records can prevent a lot of headaches, especially if there are inaccuracies on your monthly statement. 

If you notice a problem, report it promptly to the company that issued 

the card. Usually the instructions for disputing a charge are on your 

monthly statement. If you use your credit card to order by mail, by 

telephone, or online, keep copies and printouts with details about the 

transaction. 

These details should include the company’s name, address, and 

telephone number; the date of your order; a copy of the order form 

you sent to the company or a list of the stock codes of the items you 

ordered; the order confirmation code; the ad or catalog from which you 

ordered (if applicable); any applicable warranties; and the return and 

refund policies.

Finally, if you have a credit card, take the following precautions:

• Never lend it to anyone.

• Never sign a blank charge slip. Draw lines through blank spaces 

on charge slips above the total so the amount can’t be changed.

• Never put your account number on the outside of an envelope or 

on a postcard.

• Always be cautious about disclosing your account number on the 

telephone unless you know the person you’re dealing with represents a reputable company.

• Carry only the cards you expect to use to minimize the damage of 

a potential loss or theft.

• Always report lost or stolen ATM and credit cards to the card 

issuers as soon as possible. Follow up with a letter that includes 

your account number, when you noticed the card was missing, and 

when you first reported the loss.

For more information, see “Getting Credit: What You Need to 

Know About Your Credit” at ftc.gov/credit.

It’s Going Take How Long to Pay Off That Debt?

Shopping for gifts can be a real 

dilemma. Just what do you get the 

person who has everything, your 

hip best friend, your cool brother, or 

your finicky aunt? Gift cards may be 

the answer: one size fits all, and the 

recipients can get exactly what they 

want. But before you buy a wallet 

full of gift cards from your favorite 

retailer or your local financial institution, know that some strings may be 

attached. For example, some cards 

can be used only at the retailer’s 

store locations; others can be used 

at any retailer and online. Some 

have expiration dates. Some let the 

user “reload” or add money to the 

balance on the card. And some have 

fees, like activation fees, transaction 

fees, monthly maintenance fees, 

inactivity or non-use fees, replacement fees for lost or stolen cards, or 

balance inquiry fees.

Tips for buying gift cards

Store cards sold by retailers 

usually are issued free of charge. 

But banks often charge a fee to buy 

their 

cards. Some bank gift cards come 

with a Personal Identification Number (PIN) that lets the user withdraw 

cash from an ATM. Other things you 

should know before you buy a gift 

card: 

• Read the fine print before you 

buy. If you don’t like the terms 

and conditions, buy elsewhere.

• When you’re buying a card, ask 

about expiration dates and fees. 

This information may appear on 

the card itself, on the accompanying sleeve or envelope, or 

on the issuer’s website. If you 

don’t see it, ask. Make sure 

that whatever the salesperson 

tells you also is in writing. If 

the seller is reluctant to put the 

terms or conditions in writing – 

or says it isn’t necessary – shop 

elsewhere. If the information is 

separate from the gift card, give 

it to the recipient to help protect 

the value of the card. It’s also a 

good idea to give the recipient 

the original receipt to verify the 

card’s purchase in case it is lost 

or stolen.

• Consider purchase fees: Is there 

a fee to buy the card or activate 

it? If you buy the card online or 

on the phone, is there a fee for 

shipping and handling? Does 

expedited delivery cost more?

• Consider fees for the recipient. 

It might be embarrassing to 

give a $50 gift card to someone 

if much of the amount gets 

gobbled up in fees. 

• Check on purchase exceptions. 

For example, can the recipient 

use a store-specific gift card at 

either the physical store or at 

the store’s website? Can an “all 

purpose” card really be used to 

buy groceries or gasoline? 

Tips for using gift cards

If you’ve received a gift card, 

it pays to be a smart and savvy 

consumer.

• Read the terms and conditions 

as soon as you get the card, and 

check for an expiration date. 

• If you didn’t get the card’s terms 

and conditions, the original 

purchase receipt, or the card’s 

ID number, ask for them from 

the person who gave you the 

card, and then keep them in a 

safe place. 

• Treat your card like cash. If your 

card is lost or stolen, report it 

to the issuer immediately. You 

may be out the entire amount 

on the card. Some issuers won’t 

replace the cards, but others 

will if you pay a fee. And if 

they do charge for replacement 

cards, you’ll most likely need 

to document the purchase and 

provide the ID number. Most 

issuers have toll-free numbers 

so consumers can report lost or 

stolen cards.

• If your card expires before 

you’ve had a chance to use it 

or exhaust its value, contact 

the issuer. They may extend the 

date, although they may charge 

a fee. 

For more information, see 

“Buying, Giving, and Using Gift 

Cards” at ftc.gov/credit.

A Different Kind of Plastic: Gift Cards
PAGE 7

If you’re like many people, chances are you’ll face a financial crisis 

at some point in your life that can make it difficult to pay your bills. You 

could receive dunning notices from creditors. Your accounts could be 

turned over to debt collectors. And in the worst case scenario, you could 

lose your home or your car.

Whether the crisis is caused by personal or family illness, the loss 

of a job, or simple overspending, it can seem overwhelming. But often, 

it can be overcome. The fact is that your financial situation doesn’t have 

to go from bad to worse.

If you get into financial hot water, there are options: credit counseling from a reputable organization, debt consolidation, or bankruptcy. 

Which path works best for you depends on your level of debt, your level 

of discipline, and your prospects for the future.

Contacting Your Creditors

Contact your creditors immediately if you ever have trouble making ends meet. Tell them why it’s difficult for you to pay your bills, and 

try to work out a modified payment plan that reduces your payments 

to a more manageable level. Don’t wait until your accounts have been 

turned over to a debt collector. At that point, your creditors have given 

up on you.

Secured and Unsecured Debt

Your debts can be secured or unsecured. Secured debts usually are 

tied to an asset, like your car for a car loan. If you stop making payments, lenders can repossess your car. Unsecured debts are not tied to 

any asset, and include most credit card debt, bills for medical care, and 

debts for other types of services.

Auto Loans

Most automobile financing agreements allow a creditor to repossess 

your car any time you’re in default. No notice is required. If your car is 

repossessed, you may have to pay the balance due on the loan, as well 

as towing and storage costs, to get it back. If you can’t pay, the creditor 

may sell the car. If you see default approaching, you may be better off 

selling the car yourself and paying off the debt: You’ll avoid the added 

costs of repossession and a negative entry on your credit report. For 

more information, see “Knee Deep in Debt” at ftc.gov/credit.

Dealing with Debt Collectors

The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector 

may not call you before 8 a.m., after 9 p.m., or while you’re at work if 

the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to 

collect a debt. And they must honor a written request from you to stop 

further contact.

Credit Counseling

If you’re not disciplined enough to create a workable budget and 

stick to it, can’t work out a repayment plan with your creditors, or can’t 

keep track of mounting bills, consider contacting a credit counseling 

organization. Many credit counseling organizations work with you to 

solve your financial problems. If you are dealing with an organization 

that calls itself nonprofit, that’s not a guarantee that its services are 

free, affordable, or even legitimate. In fact, some credit counseling 

organizations collect high fees, which may be hidden in their charges, 

or pressure consumers to make large “voluntary” contributions that can 

cause more debt.

Most credit counselors offer services through local offices, the Internet, or the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service 

operate nonprofit credit counseling programs. Your financial institution, 

local consumer protection agency, and friends and family also may 

be good sources of information and referrals. You may check the U.S. 

Trustee Program’s website at www.usdoj.gov, too. Type “approved 

credit counseling agencies” in the search field.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free 

educational materials and workshops. Their counselors are certified and 

trained in the areas of consumer credit, money and debt management, 

and budgeting. Counselors discuss your entire financial situation with 

you, and help you develop a personal plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer 

of follow-up sessions.

For more information, see “Fiscal Fitness: Choosing a Credit Counselor” at ftc.gov/credit.

Dealing with Debt

To Do:

Find stories about the FTC or other federal, state, or local consumer agencies. How are 

these agencies helping consumers deal with various issues? Are new rules or laws being enacted 

to help consumers? What do you think should be 

done?
PAGE 8

Skilled identity thieves use a variety of methods to gain access to your 

personal information. For example, they 

may get information from businesses or 

other institutions by:

• stealing records or information while 

they’re on the job, or bribing an 

employee who has access to these 

records.

• hacking these records.

• conning information out of an 

employee.

• rummaging through your trash, 

the trash of businesses, or public 

trash dumps in a practice known as 

“dumpster diving.”

• getting your credit reports by 

abusing their employer’s authorized 

access to them, or by posing as 

a landlord, employer, or someone 

else who may have a legal right to 

access your report.

Identity thieves also may get your

information by:

• stealing your credit or debit card 

numbers by capturing the information in a data storage device in a 

practice known as “skimming.” They 

may swipe your card for an actual 

purchase, or attach the device to an 

ATM machine where you may enter 

or swipe your card. 

• stealing wallets and purses 

containing identification and credit 

and bankcards.

• stealing mail, including bank and 

credit card statements, new checks, 

or tax information.

• completing a “change of address 

form” to divert your mail to another 

location.

• stealing personal information from 

your home.

• scamming information from you by 

posing as a legitimate business or 

government official.

How Identity Thieves Use Your

Information:

Once identity thieves have your personal information, they may: 

• go on spending sprees using your 

credit and debit card account 

numbers to buy “big-ticket” items 

like computers that they can easily 

sell.

• open a new credit card account, 

using your name, date of birth, and 

Social Security number. When they 

don’t pay the bills, the delinquent 

account is reported on your credit 

report. 

• change the mailing address on your 

credit card account. The imposter 

then runs up charges on the 

account. Because the bills are being 

sent to the new address, it may take 

some time before you realize there’s 

a problem. 

• take out auto loans in your name.

• establish phone or wireless service 

in your name.

• counterfeit checks or debit cards, 

and drain your bank account.

• open a bank account in your name 

and write bad checks on that 

account.

• file for bankruptcy under your 

name to avoid paying debts they’ve 

incurred, or to avoid eviction.

• give your name to the police during 

an arrest. If they are released and 

don’t show up for their court date, 

an arrest warrant could be 

issued in your name. 

For more information, see “Deter, 

Detect, Defend: Avoid IDTheft” at

ftc.gov/idtheft.

• Before you reveal any personally identifying information, find out how it will be used, whether it will be 

shared, and with whom. 

• Pay attention to your billing cycles. Follow up with 

creditors if your bills don’t arrive on time.

• Guard your mail from theft. Deposit outgoing mail in 

post office collection boxes or at your local post office. 

Remove mail from your mailbox as soon after it has 

been delivered as you can. If you’re planning to be 

away from home and can’t pick up your mail, call the 

U.S. Postal Service toll-free at 1-800-275-8777, or 

visit www.usps.gov to ask for a vacation hold. 

• When possible, put passwords on your credit card, 

bank, and phone accounts. Avoid using easily available information like your mother’s maiden name, your 

birth date, the last four digits of your Social Security 

number or telephone number, or a series of consecutive 

numbers. It’s a good idea to keep a list of your credit 

card issuers and their telephone numbers in a safe 

place.

• Don’t give out personal information on the telephone, 

through the mail, or over the Internet unless you’ve 

initiated the contact or know whom you’re dealing 

with. 

• Protect any personal information in your home. For 

example, tear or shred documents like charge receipts, 

copies of credit offers and applications, insurance 

forms, doctor’s statements, discarded bank checks and 

statements, and expired credit cards before you throw 

them away. Be cautious about leaving personal information in plain view, especially if you have roommates, 

hire outside help, or are having service work done. 

Find out who has access to your personal information 

at work or at school, and verify that the records are 

kept in a secure location.

• Never carry your Social Security card; leave it in a 

secure place at home. Give out your Social Security 

number only when you are convinced it is absolutely 

necessary.

• Order your credit report from each of the three nationwide credit reporting companies every year to make 

sure it is accurate and includes only those activities 

you’ve authorized. 

• Carry only the identification that you actually need.

How Identity Thieves Get Your Information

DETER: How to Minimize Your 

Risk of Identity Theft

You can minimize the risks of identity theft by 

managing your personal information wisely and

cautiously. Here are some ways to protect yourself:

Identity theft occurs when someone uses your personal information to commit fraud. When an imposter co-opts your name, your Social 

Security number, your credit card number, or some other piece of your personal information for their use – in short, when someone appropriates 

your personal information without your knowledge – it’s a crime. 

The biggest problem? You may not know your identity’s been stolen until you notice that something’s amiss: you may get bills for a credit 

card account you never opened; your credit report may include debts you never knew you had; a billing cycle may pass without your receiving a 

statement; or you may see charges on your bills that you didn’t sign for, didn’t authorize, and don’t know anything about.

Identity Theft: Deter, Detect, Defend
PAGE 9

DETECT: How to Tell If You’re a Victim of Identity Theft

If you suspect that your personal information has been used to commit fraud or theft, 

take the following four steps right away.

1. Place a fraud alert on your credit reports 

and read them when you get them.

Contact any one of the nationwide credit 

reporting companies to place a fraud alert on 

your credit report. Fraud alerts can help prevent an identity thief from opening any more 

accounts in your name. The company you call 

is required to contact the other two, which will 

place an alert on their versions of your report, 

too.

• Experian: 1-888-397-3742; 

www.experian.com

• TransUnion: 1-800-680-7289; 

www.transunion.com

• Equifax: 1-800-525-6285; 

www.equifax.com

In addition to placing the fraud alert on 

your file, the three credit reporting companies 

will send you free copies of your credit reports, 

and, if you ask, they will display only the last 

four digits of your Social Security number on 

your credit reports.

2. Close the accounts that you know, or 

believe, have been tampered with or opened 

fraudulently.

Contact the security or fraud department 

of each company where you know, or believe, 

accounts have been tampered with or opened 

fraudulently. Follow up in writing, and include 

copies (NOT originals) of supporting documents. It’s important to notify credit card companies and banks in writing. Send your letters 

by certified mail, and request a return receipt 

so you can document what the company 

received and when. Keep a file of your correspondence and enclosures.

When you open new accounts, use new 

Personal Identification Numbers (PINs) and 

passwords. Avoid using easily available information like your mother’s maiden name, your 

birth date, the last four digits of your Social 

Security number or your phone number, or a 

series of consecutive numbers.

3. File a report with your local police or the 

police in the community where the identity 

theft took place.

Get a copy of the police report or, at the 

very least, the number of the report. It can 

help you deal with creditors who need proof 

of the crime. If the local police are reluctant to 

take your report, ask to file a “Miscellaneous 

Incidents” report, or try another jurisdiction, 

like your state police. You also can check with 

your state Attorney General’s office to find out 

if state law requires the police to take reports 

for identity theft. Check the Blue Pages of your 

telephone directory for the phone number or 

check www.naag.org for a list of state Attorneys General.

4. File a complaint with the Federal Trade 

Commission.

By sharing your identity theft complaint 

with the FTC, you will provide important information that can help law enforcement officials 

across the nation track down identity thieves 

and stop them. The FTC also can refer your 

complaint to other government agencies and 

companies for further action, as well as investigate companies for violations of laws that the 

FTC enforces.

You can file a complaint at ftc.gov/idtheft. 

If you don’t have Internet access, call the FTC’s 

Identity Theft Hotline, toll-free: 

• 1-877-IDTHEFT (438-4338); 

• TTY: 1-866-653-4261; 

• or write:

Identity Theft Clearinghouse 

Federal Trade Commission

600 Pennsylvania Avenue, NW 

Washington, DC 20580

For more information, see “Take Charge: 

Fighting Back Against Identity Theft” at

ftc.gov/idtheft.

DEFEND: What to Do If You’re a Victim of Identity Theft

Monitor the balances of your financial accounts. Look for unexplained charges or withdrawals. 

Other indications of identity theft can be:

• failing to receive bills or other mail, or getting bills for products or services you haven't bought.

• receiving credit cards for which you did not apply.

• denial of credit for no apparent reason.

• receiving calls from debt collectors or companies about merchandise or services you didn’t buy.

Find articles about identity theft 

and other consumer frauds. Summarize the story by identifying the 5W’s 

and the H (who, what, when, where, 

why & how) of the story. Then read 

a few commentaries. Using them as 

examples, write a brief commentary 

suggesting ways to stop this type of 

crime and how perpetrators should 

be punished. 

To Do:
PAGE 10

A car may be one of the more expensive 

purchases you make. Your first decision may 

be whether to buy new or used. Either way, 

it’s important to know how to drive a smart 

deal.

Buying a New Car

Think about what car model and options 

you want and how much you’re willing to 

spend. Be realistic and do some research. 

You’ll be less likely to feel pressured into making a hasty or expensive decision at the showroom and more likely to get a better deal. 

Consider these suggestions:

• Check publications at a library or bookstore, or on the Internet, that discuss 

new car features and prices. These may 

provide information on the dealer’s costs 

for specific models and options. 

• Shop around to get the best possible price 

by comparing models and prices in ads, 

at dealer showrooms, and online. You also 

may want to contact car-buying services 

and broker-buying services to make 

comparisons. 

• Plan to negotiate on price. Dealers may be 

willing to bargain on their profit margin, 

often between 10 and 20 percent. 

Usually, this is the difference between 

the manufacturer’s suggested retail price 

(MSRP) and the invoice price. Because 

the price is a factor in the dealer’s calculations regardless of whether you pay cash 

or finance your car – and also affects your 

monthly payments – negotiating the price 

can save you money.

• Consider ordering your new car if you 

don’t see what you want on the dealer’s 

lot. This may involve a delay, but cars on 

the lot may have options you don’t want 

– and that can raise the price. However, 

dealers often want to sell their current 

inventory quickly, so you may be able to 

negotiate a good deal if an in-stock car 

meets your needs.

Learn the Terms

Negotiations often have a vocabulary of 

their own. Here are some terms you may hear 

when you’re talking price.

Invoice Price is the manufacturer’s initial 

charge to the dealer. This usually is higher 

than the dealer’s final cost because dealers receive rebates, allowances, discounts, 

and incentive awards. Generally, the invoice 

price should include freight (also known as 

destination and delivery). If you’re buying a 

car based on the invoice price (for example, 

“at invoice,” “$100 below invoice,” “two percent above invoice”), and if freight is already 

included, make sure freight isn’t added again 

to the sales contract. 

Base Price is the cost of the car without 

options, but includes standard equipment and 

factory warranty. This price is printed on the 

Monroney sticker.

Monroney Sticker Price (MSRP) shows 

the base price, the manufacturer’s installed 

options with the manufacturer’s suggested 

retail price, the manufacturer’s transportation charge, and the fuel economy (mileage). Affixed to the car window, this label is 

required by federal law, and may be removed 

only by the purchaser.

Dealer Sticker Price, usually on a 

supplemental sticker, is the Monroney sticker 

price plus the suggested retail price of dealerinstalled options, such as additional dealer 

markup (ADM) or additional dealer profit 

(ADP), dealer preparation, and undercoating.

Car Ads: Read Between

the Lines

Many new car dealers advertise unusually 

low interest rates and other special promotions. Ads promising high trade-in allowances 

and free or low-cost options may help you 

shop, but finding the best deal requires careful 

comparisons. Many factors determine whether 

a special offer provides genuine savings. The 

interest rate, for example, is only part of the 

car dealer’s financing package. Terms like the 

size of the down payment also affect the total 

financing cost. 

Question Promotions

Special promotions include high trade-in 

allowances and free or low-cost options. Some 

dealers promise to sell the car for a stated 

amount over the dealer’s invoice. Asking 

questions like these can help you determine 

whether special promotions offer genuine 

value.

• Does the advertised trade-in allowance 

apply to all cars, regardless of their 

condition? Are there deductions for high 

mileage, dents, or rust?

• Does the larger trade-in allowance make 

the cost of the new car higher than it 

would be without the trade-in? You might 

be giving back the big trade-in allowance 

by paying more for the new car.

• Is the dealer who offers a high trade-in 

allowance and free or low-cost options 

giving you a better price on the car 

than another dealer who doesn’t offer 

promotions?

• Does the “dealer’s invoice” reflect the 

actual amount that the dealer pays the 

manufacturer? You can consult consumer 

or automotive publications and websites 

for information about what the dealer 

pays.

• Does the “dealer’s invoice” include the 

cost of options, like rustproofing or waterproofing, that already have been added to 

the car? Is one dealer charging more for 

these options than others?

• Does the dealer have cars in stock that 

don’t have expensive options? If not, will 

the dealer order one for you?

• Are the special offers available if you order 

a car instead of buying one off the lot?

• Can you take advantage of all special 

offers simultaneously?

Financing Your New Car:

Payment Options

You have two choices: pay in full or 

finance over time. If you finance, the total 

cost of the car increases. That’s because 

you’re also paying for the cost of credit, which 

includes interest and other loan costs. You’ll 

also have to consider how much you can put 

down, your monthly payment, the length of 

the loan, and the APR. Keep in mind that 

APRs usually are higher and loan periods generally are shorter on used cars than on new 

ones.

If you decide to finance your car, be aware 

that the financing obtained by the dealer, even 

if the dealer contacts lenders on your behalf, 

may not be the best deal you can get. You’re 

not limited to the financing options offered 

by a particular dealer. Before you commit to 

a deal, check to see what type of loan you 

can arrange with other lenders or your bank 

or credit union. Contact the lenders directly. 

Compare the financing they offer you with the 

financing the dealer offers you. Because offers 

vary, shop around for the best deal, comparing the APR and the length of the loan. When 

negotiating to finance a car, be wary of focusing only on the monthly payment. The total 

amount you will pay depends on the price of 

the car you negotiate, the APR, and the length 

of the loan.

Sometimes, dealers offer very low financing rates for specific cars or models, but 

may not be willing to negotiate on the price 

Buying a Car: Steering Your Way to a Good Deal
PAGE 11

of these cars. To qualify for the special rates, you may be required to 

make a large down payment. With these conditions, you may find that 

sometimes it’s more affordable to pay higher financing charges on a 

car that is lower in price or to buy a car that requires a smaller down 

payment.

Dealers and lenders offer a variety of loan terms and payment 

schedules. Shop around, compare offers, and negotiate the best deal 

you can. Be cautious about advertisements offering financing to firsttime buyers or people with bad credit. These offers often require a big 

down payment and carry a high APR. If you agree to financing that carries a high APR, you may be taking a big risk. If you decide to sell the 

car before the loan expires, the amount you receive from the sale may 

be far less than the amount you need to pay off the loan. If the car is 

repossessed or declared a total loss because of an accident, you may 

be obligated to pay a considerable amount to repay the loan even after 

the proceeds from the sale of the car or the insurance payment have 

been deducted. If your budget is tight, you may want to consider paying cash for a less expensive used car. 

If you decide to finance, make sure you understand the following 

aspects of the loan agreement before you sign any documents:

• the exact price you’re paying for the vehicle;

• the amount you’re financing;

• the APR (a measure of the cost of credit, expressed as a yearly 

rate);

• the finance charge (the dollar amount the credit will cost you);

• the number and amount of payments; 

• the total sales price (the sum of the monthly payments plus the 

down payment).

Once you decide which dealer offers the car and financing you 

want, read the invoice and the installment contract carefully. Before 

you sign a contract to purchase or finance the car, consider the terms 

of the financing and evaluate whether it is affordable. Check to see that 

all the terms of the contract reflect the agreement you made with the 

dealer. If they don’t, get a written explanation before you sign. Before 

you drive off the lot, be sure to have a copy of the contract that both 

you and the dealer have signed and be sure that all blanks are filled in. 

Careful shopping will help you decide what car, options, and financing 

are best for you.

For more information, see “Buying a New Car” at 

ftc.gov/bcp/menus/consumer/autos/buy.shtm.

Before you start shopping for a used car, 

you’ll need to do some homework. Spending 

time now may save you serious money later. 

Think about your driving habits, your needs, 

and your budget. As with new cars, you have 

two payment options: paying in full or financing over time.

You can learn about car models, options, 

and prices by reading ads. There is a wealth 

of information about used cars on the Internet: 

enter “used car” as the key words and you’ll 

find additional information on how to buy a 

used car, detailed instructions for conducting 

a pre-purchase inspection, and ads for cars 

available for sale, among other information. 

Libraries and bookstores also have publications that compare car models, options, and 

costs, and offer information about frequencyof-repair records, safety tests, and mileage. 

Many of these publications have details on the 

do’s and don’ts of buying a used car.

Once you’ve narrowed your car 

choices, research the frequency of repair 

and maintenance costs on the models in 

auto-related consumer magazines. Contact 

the U.S. Department of Transportation at 

1-888-327-4236 or www.odi.nhtsa.dot.gov

for information on defects and recalls.

To Do:

Find ads for new cars. Find the average cost of gasoline 

in your area. Choose a new car that you would like to buy 

from the ads. Let’s say you want to put down 10 percent, and 

finance the balance at 7 percent. Calculate your monthly payments for a five-year (60 months) and six-year (72 months) 

loan. How much more will you be paying for the car if you opt 

for the six year loan?

Now, calculate the cost of gasoline per month, based on 

800 miles and 25 miles per gallon, and multiply by the average cost per gallon in your area. Factor in $150 per month 

for auto insurance. What is your monthly cost for driving 

your new car? That is, what is the combined cost of gas and 

insurance?

Buying a USED Car

Worksheet for Buying a New Car

Options Invoice Price* Sticker Price

Transmission: Automatic ______ Manual ______ 

Air Conditioning

Engine: Size _____________________

Audio System:

 AM-FM _____ w/ CD _____ w/ XM _____ 

 Speaker System _____

Brakes: Antilock _____ Power-assisted _____

Power Locks

Seats: Power _____ Heater _____ Leather _____

Rear Window: Wiper _____ Defroster _____

Wheels & Tires:

 Alloy Wheels _____

 All-Season Tires _____

Mirrors & Lights:

 Illuminated Dual Vanity Mirrors

 Map Lights

 Exterior Power Mirrors

Alarm/Security System

Remote Keyless Entry

Sunroof

Other:

Other:

Other:

Other:

Total:

Before you negotiate the price of your next new car, use this worksheet to establish the bargaining room.

MODEL:____________________________________ BASE PRICE: $____________________

Full size worksheet on page 15.
PAGE 12

Dealer Sales

Used cars are sold through a variety of outlets: franchise and independent dealers, rental car companies, leasing companies, used car 

superstores, and online. Ask friends, relatives, and co-workers for recommendations. You may want to call your local consumer protection 

agency, state Attorney General (AG), and the Better Business Bureau 

(BBB) to find out if any unresolved complaints are on file about a particular dealer. Some dealers are attracting customers with “no-haggle 

prices,” “factory certified” used cars, and better warranties. Consider 

the dealer’s reputation in your decision. Dealers are not required by 

law to give used car buyers a three-day right to cancel. The right to 

return the car in a few days for a refund exists only if the dealer grants 

this privilege to buyers. Dealers may describe the right to cancel as 

a “cooling-off” period, a money-back guarantee, or a “no questions 

asked” return policy. Before you purchase from a dealer, ask about the 

return policy, get it in writing, and read it carefully.

The FTC enforces the Used Car Rule, which requires dealers to 

post a Buyers Guide in every used car they offer for sale. The Buyers 

Guide must tell you: 

• whether the vehicle is being sold “as is” or with a warranty;

• what percentage of the repair costs a dealer will pay under the 

warranty;

• that spoken promises are difficult to enforce;

• to get all promises in writing;

• to keep the Buyers Guide for reference after the sale;

• the major mechanical and electrical systems on the car, including 

some of the major problems you should look out for; and

• to ask to have the car inspected by an independent mechanic 

before you buy.

Warranties

When you buy a used car from a dealer, get the original Buyers 

Guide that was posted in the vehicle, or a copy. The Guide must reflect 

any negotiated changes in warranty coverage. It also becomes part of 

your sales contract and overrides any contrary provisions. For example, 

if the Buyers Guide says the car comes with a warranty and the contract says the car is sold “as is,” the dealer must give you the warranty 

described in the Guide.

As Is – No Warranty: When the dealer offers a vehicle “as is,” the 

box next to the “As Is – No Warranty” disclosure on the Buyers Guide 

must be checked. If the box is checked but the dealer promises to 

repair the vehicle or cancel the sale if you’re not satisfied, make sure 

the promise is written on the Buyers Guide. Otherwise, you may have 

a hard time getting the dealer to make good on his word. Some states, 

including Connecticut, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Jersey, New York, Rhode Island, Vermont, 

West Virginia, and the District of Columbia, don’t allow “as is” sales for 

many used vehicles.

Implied Warranties: State laws hold dealers responsible if cars 

they sell don’t meet reasonable quality standards. These obligations 

are called implied warranties – unspoken, unwritten promises from 

the seller to the buyer. However, dealers in most states can use the 

words “as is” or “with all faults” in a written notice to buyers to eliminate implied warranties. There is no specified time period for implied 

warranties. 

Warranty of Merchantability: The most common type of implied 

warranty is the warranty of merchantability: The seller promises that 

the product offered for sale will do what it’s supposed to. That a car 

will run is an example of a warranty of merchantability. This promise 

applies to the basic functions of a car. It does not cover everything that 

could go wrong.

Breakdowns and other problems after the sale don’t prove the 

seller breached the warranty of merchantability. A breach occurs only if 

the buyer can prove that a defect existed at the time of sale. A problem 

that occurs after the sale may be the result of a defect that existed at 

the time of sale or not. As a result, a dealer’s liability is judged caseby-case.

If you have a written warranty that doesn’t cover your problems, you still may have coverage through implied warranties. That’s 

because when a dealer sells a vehicle with a written warranty or service contract, implied warranties are included automatically. The dealer 

can’t delete this protection. Any limit on an implied warranty’s time 

must be included on the written warranty.

In states that don’t allow “as is” sales, an “Implied Warranties 

Only” disclosure is printed on the Buyers Guide in place of the “As Is” 

disclosure. The box beside this disclosure will be checked if the dealer 

decides to sell the car with no written warranty. 

In states that allow “as is” sales, the “Implied Warranties Only” 

disclosure should appear on the Buyers Guide if the dealer decides to 

sell a vehicle with implied warranties and no written warranty.

Dealers who offer a written warranty must complete the warranty 

section of the Buyers Guide. Because terms and conditions vary, it may 

be useful to compare and negotiate coverage.

Dealers may offer a full or limited warranty on all or some of a 

vehicle’s systems or components. Most used car warranties are limited 

and their coverage varies. A full warranty includes the following terms 

and conditions:

• Anyone who owns the vehicle during the warranty period is entitled 

to warranty service.

• Warranty service will be provided free of charge, including such 

costs as removing and reinstalling a covered system.

• You have the choice of a replacement or a full refund if, after a 

reasonable number of tries, the dealer cannot repair the vehicle or 

a covered system.

• You only have to tell the dealer that warranty service is needed in 

order to get it, unless the dealer can prove that it is reasonable to 

require you to do more.

• Implied warranties have no time limits.

If any of these statements don’t apply, the warranty is limited.

A full or limited warranty doesn’t have to cover the entire vehicle. 

The dealer may specify that only certain systems are covered. Some 

parts or systems may be covered by a full warranty; others by a limited 

warranty.
PAGE 13

The dealer must check the appropriate box on the Buyers Guide 

to indicate whether the warranty is full or limited and the dealer must 

include the following information in the “Warranty” section:

• the percentage of the repair cost that the dealer will pay. For 

example, “the dealer will pay 100 percent of the labor and 100 

percent of the parts...”;

• the specific parts and systems – such as the frame, body, or brake 

system – that are covered by the warranty. The back of the Buyers 

Guide lists the major systems where problems may occur;

• the warranty term for each covered system. For example, “30 days 

or 1,000 miles, whichever comes first”; and 

• whether there’s a deductible and, if so, how much.

You have the right to see a copy of the dealer’s warranty before you 

buy. Review it carefully to determine what is covered. The warranty 

gives detailed information, such as how to get repairs for a covered 

system or part. It also tells who is legally responsible for fulfilling the 

terms of the warranty. If it’s a third party, investigate their reputation 

and whether they’re insured. Find out the name of the insurer, and call 

to verify the information. Then check out the third-party company with 

your local Better Business Bureau. That’s not foolproof, but it is prudent. Make sure you receive a copy of the dealer’s warranty document 

if you buy a car that is offered with a warranty. 

Unexpired Manufacturer’s Warranties: If the manufacturer’s 

warranty still is in effect, the dealer may include it in the “systems covered/duration” section of the Buyers Guide. To make sure you can take 

advantage of the coverage, ask the dealer for the car’s warranty documents. Verify the information (what’s covered, expiration date/miles, 

necessary paperwork) by calling the manufacturer’s zone office. Make 

sure you have the Vehicle Identification Number (VIN) when you call. 

Service Contracts

Like a warranty, a service contract provides repair and/or maintenance for a specific period. But warranties are included in the price of 

a product, while service contracts cost extra and are sold separately. 

To decide if you need a service contract, consider whether:

• the service contract duplicates warranty coverage or offers protection that begins after the warranty runs out. Does the service 

contract extend beyond the time you expect to own the car? If 

so, is the service contract transferable or is a shorter contract 

available?

• the vehicle is likely to need repairs and their potential costs. You 

can determine the value of a service contract by figuring whether 

the cost of repairs is likely to exceed the price of the contract.

• the service contract covers all parts and systems. Check out all 

claims carefully. For example, “bumper to bumper” coverage may 

not mean what you think.

• a deductible is required and, if so, the amount and terms.

• the contract covers incidental expenses, such as towing and rental 

car charges while your car is being serviced.

• repairs and routine maintenance, such as oil changes, have to be 

done at the dealer.

• there’s a cancellation and refund policy for the service contract 

and, whether there are cancellation fees.

• the dealer or company offering the service contract is reputable. 

Read the contract carefully to determine who is legally responsible 

for fulfilling the terms of the contract. Some dealers sell third-party 

service contracts.

The dealer must check the appropriate box on the Buyers Guide if 

a service contract is offered, except in states where service contracts 

are regulated by insurance laws. If the Guide doesn’t include a reference to a service contract and you’re interested in buying one, ask the 

salesperson for more information.

If you buy a service contract from the dealer within 90 days of 

buying a used vehicle, federal law prohibits the dealer from eliminating 

implied warranties on the systems covered in the contract. For example, if you buy a car “as is,” the car normally is not covered by implied 

warranties. But if you buy a service contract covering the engine, you 

automatically get implied warranties on the engine. These may give 

you protection beyond the scope of the service contract. Make sure you 

get written confirmation that your service contract is in effect.

Look at the used car dealer ads in your newspaper. What credit terms do they offer? Are they 

higher than those offered for new cars?

What are the variables to consider in determining who offers the best value? Is the car a “certified 

used car”? Does the ad say what “certified” means? 

How do prices on the Internet compare with the 

prices advertised in the newspaper? What considerations should you make when deciding whether to 

pay cash or finance?

To Do:
PAGE 14

It’s best to have any used car inspected by an independent 

mechanic before you buy it. An inspection is a good idea even if the 

car has been “certified” and inspected by the dealer and is being sold 

with a warranty or service contract. A mechanical inspection is different from a safety inspection. Safety inspections usually focus on conditions that make a car unsafe to drive. They are not designed to determine the overall reliability or mechanical condition of a vehicle.

To find a pre-purchase inspection facility, check the Internet or 

your Yellow Pages under “Automotive Diagnostic Service,” or ask 

friends, relatives, and co-workers for referrals. Look for facilities that 

display certifications like an Automotive Service Excellence (ASE) seal. 

Certification indicates that some or all of the technicians meet basic 

standards of knowledge and competence in specific technical areas. 

Make sure the certifications are current, but remember that certification alone is no guarantee of good or honest work. Also ask to see current licenses if state or local law requires such facilities to be licensed 

or registered. Check with your state Attorney General’s office or local 

consumer protection agency to find out whether there’s a record of 

complaints about particular facilities. 

There are no standard operating procedures for pre-purchase 

inspections. Ask what the inspection includes, how long it takes, and 

how much it costs. Get this information in writing. 

If the dealer won’t let you take the car off the lot, perhaps because 

of insurance restrictions, you may be able to find a mobile inspection 

service that will go to the dealer. If that’s not an option, ask the dealer 

to have the car inspected at a facility you designate. You will have to 

pay the inspection fee. 

Once the vehicle has been inspected, ask the mechanic for a written report with a cost estimate for all necessary repairs. Be sure the 

report includes the vehicle’s make, model, and VIN. Make sure you 

understand every item. If you decide to make a purchase offer to the 

dealer after considering the inspection’s results, you can use the estimated repair costs to negotiate the price of the vehicle. 

Vehicle Systems

The Buyers Guide lists an auto’s 14 major systems and some serious problems that may occur in each. This list may help you and your 

mechanic evaluate the mechanical condition of the vehicle. The list 

also may help you compare warranties offered on different cars or by 

different dealers.

Private Sales

An alternative to buying from a dealer is buying from an individual. 

You may see ads in newspapers, on bulletin boards, or on cars. Buying a car from a private party is very different from buying a car from a 

dealer. 

• Private sellers generally are not covered by the Used Car Rule and 

don’t have to use the Buyers Guide. However, you can use the 

Guide’s list of an auto’s major systems as a shopping tool. You also 

can ask the seller if you can have the vehicle inspected by your 

mechanic.

• Private sales usually are not covered by the “implied warranties” of 

state law. That means a private sale probably will be on an “as is” 

basis, unless your purchase agreement with the seller specifically 

states otherwise. If you have a written contract, the seller must 

live up to the promises stated in the contract. The car also may be 

covered by a manufacturer’s warranty or a separately purchased 

service contract. However, warranties and service contracts may 

not be transferable, and other limits or costs may apply. Before you 

buy the car, ask to review its warranty or service contract.

• Many states do not require individuals to ensure that their vehicles 

will pass state inspection or carry a minimum warranty before they 

offer them for sale. Ask your state Attorney General’s office or local 

consumer protection agency about the requirements in your state.

For more information, see “Buying a Used Car” at

ftc.gov/bcp/menus/consumer/autos/buy.shtm.

Pre-Purchase Independent Inspection

1 2 3

4 5 6

7 8

9

10 11

12

13 14

15 16 17

18 19

20

1. Fine print

7. Fee for not paying your

bill in full

10. Online con used to get

personal information

11. Fee you pay on money 

you borrow

16. Nation's consumer

protection agency

17.Internet service provider 

18.A debt collector may not 

call before ___ a.m.

19.Money loaned

20. Helps predict creditworthiness

Across

2. Identifier

3. An item you use to buy

things now and pay for 

them later

4. Car maker's initial charge 

to the dealer

5. One of three national

credit reporting 

companies

6. Money you owe

8. When your personal info is 

used to commit fraud

9. Measure of the cost of 

credit, expressed as 

yearly rate 

12.Another national con- sumer

reporting company

13.Income and expenses

14.Person who lends money

15.Credit card

Down

Know Your Stuff?

C S L I A T E D

D T R I S

E G R A H C E C N A N I F

B A D V D

T N I O E A

T S E R E T N I G N I H S I H P

E U C C T R

X N C A E I B

P S I R R P C T F U P

E O E D R Y D L

R N D I T G A

I T I D E R C T H G I E S

A T E E T T

N O F I

R E R O C S T I D E R C

answers:
Guide to Buying a Used Car Worksheet for Buying a New Car

Options Invoice Price* Sticker Price

Transmission: Automatic ____ Manual ____Engine:Air Conditioning

 Size _____________________

 AM-FM Audio System:

____

 w/ CD 

____

 w/ XM 

____

Speaker System ____

Brakes: Antilock ____ Power-assisted ____Seats:Power Locks

 Power ____ Heater ____ Leather ____

Rear Window: Wiper ____ Defroster ____Wheels & Tires:

Alloy Wheels ____

 All-Season Tires 

_____

Mirrors & Lights:

Illuminated Dual Vanity Mirrors

Total:Other:Other:Other:Other:SunroofRemote Keyless EntryAlarm/Security System Exterior Power Mirrors Map Lights

Before you negotiate the price of your next new car, use this worksheet to establish the bargaining room.

MODEL:____________________________________ BASE PRICE: $____________________

*You can get the invoice price by looking at the dealer's invoice or contacting 

companies that provide this information, often online.
Federal Trade Commission | Learn more at ftc.gov | 1-877-FTC-HELP 

Guide to Buying a Used Car (continued)