If you want to get approved at the best possible terms when buying a car, it’s important you know a car lender’s credit guidelines before you apply for credit…especially if you’re bankrupt.

It will save you time and frustration–but more importantly, it will help you avoid credit inquiries that may lower your FICO credit scores up to 12 points per inquiry.

Step 1 in making a lease or buy decision is to determine a lender’s credit guidelines.

You start by asking if they lend to people with a bankruptcy. If so, on what terms?

That’s right. You have to be upfront that you’ve filed bankruptcy. Don’t hide it. We have to face the fact that some dealers just won’t work with people who’ve filed bankruptcy. So our job is to find the ones that do.

Some lenders will only lease to people with a bankruptcy. Others will only offer purchase financing. Yet still others will only lend using a hybrid of the two–this is especially common in Texas.

Ask the finance director at the dealership to direct you as to what structure the manufacturer prefers.

And here’s a quick tip for you: if your bankruptcy doesn’t appear on the credit report your lender pulls–then, in the eyes of the lender, you’re not bankrupt.

The only lenders I would consider using are:

- First choice: Captive lenders (car manufacturers)

- Second choice: Banks (not finance companies)

- Third choice: Credit unions

Ninety-nine percent of the cars I’ve leased over the years have been with captive lenders. Just one was leased by a bank.

That particular deal came from a conversation I had with Amy, the finance manager at the local Land Rover dealership here in Indianapolis. I told her I was open to her financing recommendations, but I preferred financing through the car manufacturer.

I told her my current FICO scores. She immediately said that with my scores she could do better through a local bank. I signed a credit application and told her to go for it.

The next day I signed a lease agreement with that local bank. Being open to her advice literally saved me hundreds of dollars a month on that car.

So be flexible…but be careful. It seems most car dealers call all of their funding sources banks. When in reality some are banks, some are credit unions, and most are sub-prime finance companies.

Here is a list of some of the most commonly used sub-prime auto finance companies:

1. HSBC Automotive

2. Capital One

3. AmeriCredit

4. WFS Financial

You want to pass on the sub-prime finance companies–unless you have exhausted all other options. Sub-prime lenders should be your last resort.

And only use credit unions if they report to all three national credit reporting agencies. How do you find out if a credit union reports to all three credit reporting agencies?

Simple–you ask. Ask the branch manager at the credit union if they report. And after you get the loan, check all three of your credit reports and make sure their trade line appears on each one.

The three worst luxury captive lenders to lease or purchase from after bankruptcy are:

1. BMW

2. Mercedes

3. Porsche

The three worst mainstream captive lenders are:

1. Honda

2. Kia/Subaru

3. Toyota

What makes these the worst?

Once these lenders see that you’ve filed bankruptcy, they are less likely to work with you. However, if they are willing to work with you, they’ll want you to be at least several years from discharge and have perfect credit during that time.

Now that I told you how bad the above six lenders are–there are times where they may offer you good deals. For example, if one of the above happens to be the biggest dealer in your area, they may be able to offer you special deals that a smaller dealer can’t.

Of course, things change all the time with captive auto lenders. They change their credit guidelines on a whim to meet their own financial goals. So, it’s always a good idea to at least research these dealerships–just don’t get your hopes up too high.

OK, so you’ve done your research and narrowed down your choice to one or two car manufacturers.

Step 2 in making a lease or buy decision is to purchase your FICO credit scores.

It’s important you have your most recent scores when you talk to car dealers (just like I did with Amy). It puts you in charge.

When you enter a dealership with your FICO scores, the dealer will know you’re a more informed consumer and cannot be taken advantage of. Just know that the FICO credit scores auto dealers use are a little different than what we see as consumers. The scores the dealers review are called FICO Auto Industry Option Scores. The good news…these FICO scores may be higher than your normal FICO scores if you paid all previous auto loans as agreed.

Some car dealers have told me that if your FICO scores are higher than the scores the dealer reviews–they may even use your scores to get a better deal.

You can buy your scores from myFICO.com.

Step 3 is to interview the remaining car dealers on a deeper level.

Start by asking them these questions:

- Which credit reporting agency do you use to make a lending decision?

- What is your minimum credit score requirement to get approved?

- What credit score is needed to get the best interest rate?

- Do your lenders prefer offering lease or purchase financing to a bankrupt debtor?

- What incentives are there to lease or purchase right now?

At this point it’s important to remain open to either leasing or purchasing. Evaluate your options and incentives. Remember, you’re buying the financing. In other words, the most important factor is the willingness of the lender to loan you money.

I personally view the lease versus buy decision in three ways:

1. If you’re recently recovering from bankruptcy, the only thing that matters is if you can get approved at an interest rate you can afford through a lender that reports to all three national credit reporting agencies. So you should only consider lenders that are bankruptcy friendly.

2. Once your credit scores begin to increase, you can start selecting cars based on which credit reporting agency the lender uses to determine if you qualify. Obviously, you should choose the lender who uses your highest FICO credit score to make a lending decision.

3. When your scores are high enough…or two years have passed after your bankruptcy…or your bankruptcy doesn’t appear on the credit report the lender uses, then you can choose almost any car you like. But make sure you still do your research and use your credit scores to help you compare interest rates, terms and incentives.

A new loan or credit card application provokes lenders, landlords, investors and FICO to “inquire” about the nature of the said credit. This phenomenon is known as an inquiry, which has a fair potential of affecting your credit score. A general rule of thumb suggests signing up for free FICO credit score report on bi-yearly basis. This is to give you an idea about your current credit score, before you end up with another “credit card”.

Yes, inquiries do impact credit score and like all other organizations, FICO also has a way of evaluating inquiries. Generally speaking, a new credit card or credit application is considered as a risk by loan sharks. Since lenders don’t want a liability at hands, they’ll either handover loans with strict terms or plainly refuse to give it. In both cases, you’re going to lose. Of course, the first option seems a little “viable” but you’ll have a hard time meeting payback and heavily imposed compounded interest rates.

To what extent does an inquiry affect MyFICO credit scores?

If you have a good credit clearance history, signing up for another credit card or loan, will not affect your existing credit score that much. A greater impact only occurs, in case of multiple accounts with default cases. Filling in an application form for a new card, just to shed off old loans, will decrease the credit ratings. FICO will deduct points accordingly, and you’ll have to abide by higher interest rates from landlords, utility corporations, online retailers, subscription based services and etc. Inquiries from client’s side that pertain to free FICO credit reports, do not affect anything.

In case a 3rd party makes a credit inquiry that doesn’t involve a client’s consent, the phenomenon will be touted as a “soft inquiry”. These inquiries are involuntary, which are only run to get some background info. Lenders, banks and prospective employers normally opt for this sort of thing.

On the contrary, announced or voluntary credit inquiries are marked down on a credit consumer’s report.

Student Loan Auto Loan Mortgage Installments that involve cell phone contracts and cars Private loans

All of the above loans are hazardous in case the consumer is headed for them in multiples. Such inquiries slice through the credit score like a knife. Sooner or later, the consumer is red flagged for all sorts of future business transactions. A debt consolidation company would seem to be the only option from this point onwards. As a side note, never ever go for credit card cancellation process while it’s in the middle of payment hassles.

The largest platforms for obtaining credit reports are

Experian Equifax and Trans Union

All three credit bureaus allow you to purchase your credit scores directly from them, or the alternative is to visit myFICO.com where you can purchase your scores directly form there for each credit bureau.

There is another service that you can use to roughly estimate how your score will look and that is at annualcreditreports.com. This site allows you to get a free copy of your credit reports from each of the three credit bureaus every 12 month period. While this will not give you your actual score, you can look through the reports to get an idea of what your credit score will be like.

The determining factors for your FICO score are outlined below:

Payment History Debt ratio Length of Credit History Types of Credit Number of Credit Inquiries

By looking through your credit reports and seeing how these sections measure up you can get an indication of your what your score may look like. The actual FICO score themselves are only available to purchase and are not supplied free of charge.

When you looking to obtain an actual FICO score then the only viable option would be to visit MyFICO.com where you have the option to purchase your credit scores from each of the big three credit reporting agencies at a discounted bulk price or individually.

The scores can also be obtained from each credit reporting agency directly through their own websites.

There is a lot of debate around the FICO and FAKO scoring models which is why people opt to go through FICO themselves to obtain the credit scores. Typically a FAKO score is considered to be a credit score that is obtained from a different source other than FICO which could be a credit score purchased from Experian.com or any other site similar that provides their own version of a credit score and have their own range. The maximum FICO score is 850, while with Experian the maximum score is 999.

In order to obtain the correct score sometimes the best way is going through the lender as they all use different credit bureaus for their credit checks. If you get denied credit for any reason you can ask the lender to provide you with a copy of the details that they used to get to their decision. This way they will release the data about your credit reports as well as the scores you have with the credit bureau that they used and information on which part of the credit report it was that got your application denied.

By obtaining the details this way the negative parts of your credit report are already identified and therefore if you can take action to get that item deleted, then you can raise your credit score without much difficulty.

By obtaining the details in this way you can get to know which credit bureau the company uses for their credit checks and use this for future reference as you can get the credit report and/or score from the credit bureau and work on improving it by having negative items deleted, lowering your debt-ratio and things like that. Once you have done a bit of work to repair that particular credit report you will be in a better position to obtain credit from that company at a later date.