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.

Chances are you are reading this article because you want nothing more than a second chance to show lenders that you have learned from painfully bad mistakes that you might have made in the past with regards to your credit. You are now older, wiser, more ready to manage your finances – if only someone would give you a chance.

The good news is that there are lenders who are willing to do just that. These lenders have literally helped thousands of bad credit borrowers just like you find the needed resources to obtain loans, credit cards, even mortgages, regardless of their shabby-looking credit files or deflated credit scores. You can be next.

But How, You Ask?

These special online lenders deal only with borrowers who have had some difficulties in the past that resulted in derogatory credit items being listed with the major credit reporting bureaus. They see past the stereotypical borrower with good credit to understand that sometimes people are capable of change. They have seen every situation, every type of credit score you can imagine – yet they are able to help you crawl out from under your financial mess by providing funding.

Do not expect that your credit score will improve by leaps and bounds overnight or even within a few months. But by following some simple steps, you can get back on the road to recovery in less than a year.

Secured Credit Cards

Obtaining a secured credit card is one of the fastest ways that you can improve your credit score. By placing a deposit with a bad credit secured card issuer in the amount that you wish to have credit extended to you, you demonstrate your willingness to back-up your intentions to become a good borrower. By using your secured credit card wisely, you will provide monthly proof that you have turned over a new leaf. Your good payment history with your new secured credit card can add dozens of valuable points to your credit score in just a year or less.

Secured Personal Loans

A secured personal loan is a loan that is secured by collateral. Collateral can be your home, car, or piece of real estate that you have a title or deed to that proves ownership. By taking out a secured personal loan, you can establish good payment history with monthly credit bureau reporting that can help your credit score soar to better numbers in no time.

Build Your File Back Up

When you apply for your secured credit card or secured personal loan, do so with a lender that gives you the best chance for approval, such as the online lender. Whenever you apply for credit, points are deducted automatically from your FICO score. Therefore, if you apply for multiple loans, get turned down for all or most of them, then you have further damaged your credit rating. Because of the high rate of approval with an online lender, you need make only one application to get the credit you need to help you rebuild your good name.

Before you can work on erasing your debt, you need a clear understanding of your financial situation. Here are the most important items to consider when assessing your finances.

Income versus Debt. Unfortunately, most people don’t realize how much they spend until they sit down and start counting everything. After only ten minutes of research, you should clearly see how much money is coming in and how much is going out. The numbers may be worse than you think, though recognizing the problem is the first step towards improving your finances. You may have reduce your spending on simple pleasures like dining out or going to the movies or, depending on the severity of your situation, remove them altogether.

Request credit histories. There are three agencies that run credit reports: Equifax (800-685-1111), Experian (888-397-3743) and TransUnion (800-888-4213). Contact all three and ask for your credit report. While the three are usually in the same ballpark, you may find one is much higher (or lower) than the others. It’s important to find out why and remedy the situation. Creidt reports are the most objective look at your finances; not only does it list what you owe, it shows who you owe to, whether you’ve exceeded your credit limits, and if you consistently pay your bills on time (which of course, you should!). Having low credit scores makes for higher interest payments on credit cards and, more importantly, mortgages.

Check out your FICO score. This is another way lenders assess your finances, and can be even more important than your credit histories. A FICO score is measured by your credit history, so its results should be similar to your three credit history reports. The score ranges from 300 to 850. If you are over 720, you are in great shape. You can find this information on their website at http://www.myfico.com.

These are the three most important steps to determining your finances. Remember, in order to beat over spending, you must be aware of your income and debts, and learn to manage them appropriately. According to a study by The National Foundation for Credit Counseling, 41% of those who filed for bankruptcy cited poor management of their money. Take action today, and don’t become one of those 41%!