HOW TO
FIX YOUR CREDIT YOURSELF
(without an attorney)
How to Know
When &
Where
to Apply for
CREDIT
Discover when your credit is
good enough to get approved
Lesson Nineteen: How to Know When and Where to Apply for Credit
Introduction
Now that you’ve been through the process of learning how to fix your credit
scores you may feel that your scores are high enough to begin applying for
the credit you want or need.
Maybe you feel that you’ve met the specific credit goal you set to reach at
the beginning of the program...Maybe your credit scores have improved, or
time has gone by since your bankruptcy and now you’re ready to test the
waters by applying for credit.
But are you ready? Will you be turned down? How do you know if you will
get approved? And if you did have the confidence to proceed, what would be
the best type of lender to apply with?
That’s the purpose of this Lesson. It is designed to take you by the hand and
give you confidence to know when you are ready to apply for credit.
Mystery solved...
“When To Apply” Charts
Applying for credit after bankruptcy can be a confusing and intimidating process. In this section we’ll focus on timing.
When you apply for credit depends on several factors. One of the most
important is how long it’s been since you were discharged from your bankruptcy (we will discuss the others in detail later in the report). A discharge
normally occurs between 90 to 120 days after your bankruptcy is filed—if
you filed Chapter 7. If you filed Chapter 13, a discharge can take 3 to 5 years.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
On the next few pages are charts that clearly point out when it’s appropriate
to apply for credit after bankruptcy.
I’ve never published charts like this before…for good reason. Who am I to
tell someone that it can’t be done? But having been asked so many questions
relating to this issue over the years (e.g., “Can I get approved for a personal
loan if I just filed bankruptcy last week?”), I decided it was time.
The charts are broken down into several categories:
One day after discharge
6 months after discharge
1 year after discharge
2 years after discharge
3 years after discharge
4 years after discharge
5 years after discharge
6 years after discharge
7 years after discharge
Chapter 13 filer
Chapter 13 discharged
After the bankruptcy is removed from credit report(s)
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Lesson Nineteen: How to Know When and Where to Apply for Credit
Before you dive into the charts, let’s define a few of the items below that may
not be obvious. (I think most people know the difference between a new and
used car.)
Low limit unsecured cards - These are what I consider to be predatory lenders. They typically solicit you after your bankruptcy and offer up to a $500
line of credit at a very high interest rate (one even goes as high as 59%!).
Unsecured credit card - This is the normal type of bank credit card people
with excellent credit get, usually with a high limit and low interest rate.
Secured credit cards - These are types of cards that require you to deposit
money with a credit card lender, and they give you a limit of credit based on
the amount of your deposit.
FHA mortgage - This is a government mortgage program provided by the
Federal Housing Administration.
Conventional mortgage - This is what traditional banks offer their customers. Conventional mortgages have more strict rules for people with a
previous bankruptcy.
The charts are found on the next twelve pages. Turn the page to start with
one day after bankruptcy discharge.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
One Day After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
•
Used Car
Low Limit Unsecured
Credit Card
•
•
•
Secured Credit Card
Retail Credit Card
•
FHA Mortgage
•
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
5
Why
Are You
Waiting?
•
New Car
Normal Unsecured
Credit Card
Yes, But
Buyer
Beware
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Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
6 Months After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
Yes, But
Buyer
Beware
•
New Car
•
Used Car
Low Limit Unsecured
Credit Card
Normal Unsecured
Credit Card
•
•
•
Secured Credit Card
•
Retail Credit Card
FHA Mortgage
•
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
6
Why
Are You
Waiting?
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Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
1 Year After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
Normal Unsecured
Credit Card
•
•
•
Secured Credit Card
•
Retail Credit Card
FHA Mortgage
•
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
7
Yes, But
Buyer
Beware
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Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
2 Years After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
Normal Unsecured
Credit Card
•
•
•
Secured Credit Card
•
Retail Credit Card
•
FHA Mortgage
Conventional
Mortgage
•
•
Mortgage Refi
Personal Loan
Business Loan
Finance Company Loan
8
Yes, But
Buyer
Beware
•
•
•
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Copyright 2013 LifeAfterBankruptcy.com
Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
3 Years After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
•
Normal Unsecured
Credit Card
•
•
Secured Credit Card
•
Retail Credit Card
•
FHA Mortgage
Conventional
Mortgage
•
•
Mortgage Refi
Personal Loan
Business Loan
Finance Company Loan
9
Yes, But
Buyer
Beware
•
•
•
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Copyright 2013 LifeAfterBankruptcy.com
Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
4 Years After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
Normal Unsecured
Credit Card
•
•
•
Secured Credit Card
Retail Credit Card
•
•
FHA Mortgage
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
10
Yes, But
Buyer
Beware
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Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
5 Years After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
Normal Unsecured
Credit Card
•
•
•
Secured Credit Card
Retail Credit Card
•
•
FHA Mortgage
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
11
Yes, But
Buyer
Beware
•
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Copyright 2013 LifeAfterBankruptcy.com
Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
6 Years After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
Normal Unsecured
Credit Card
•
•
•
Secured Credit Card
Retail Credit Card
•
FHA Mortgage
•
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
12
Yes, But
Buyer
Beware
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Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
7 Years After Bankruptcy Discharge
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
Normal Unsecured
Credit Card
•
•
•
Secured Credit Card
Retail Credit Card
•
FHA Mortgage
•
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
13
Yes, But
Buyer
Beware
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Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
Chapter 13 Filer
Type of Loan
or Credit Card
When
Pigs Fly
Maybe
Yes, But
Don’t
Bother
•
Used Car
Low Limit Unsecured
Credit Card
•
•
•
Secured Credit Card
Retail Credit Card
•
•
FHA Mortgage
Conventional
Mortgage
•
•
Mortgage Refi
Personal Loan
•
Business Loan
•
Finance Company Loan
14
Why
Are You
Waiting?
•
New Car
Normal Unsecured
Credit Card
Yes, But
Buyer
Beware
•
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Copyright 2013 LifeAfterBankruptcy.com
Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
Chapter 13 Discharged
Type of Loan
or Credit Card
Maybe
Yes, But
Don’t
Bother
Yes, But
Buyer
Beware
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
•
Normal Unsecured
Credit Card
•
Secured Credit Card
•
Retail Credit Card
•
FHA Mortgage
•
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
15
When
Pigs Fly
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Copyright 2013 LifeAfterBankruptcy.com
Lesson Nineteen: How to Know When and Where to Apply for Credit
When to Apply:
No Bankruptcy on Your Reports
Type of Loan
or Credit Card
Maybe
Yes, But
Don’t
Bother
Yes, But
Buyer
Beware
Why
Are You
Waiting?
New Car
•
Used Car
•
Low Limit Unsecured
Credit Card
•
Normal Unsecured
Credit Card
•
Secured Credit Card
•
Retail Credit Card
•
FHA Mortgage
•
Conventional
Mortgage
•
Mortgage Refi
•
Personal Loan
•
Business Loan
•
Finance Company Loan
16
When
Pigs Fly
•
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Copyright 2013 LifeAfterBankruptcy.com
Lesson Nineteen: How to Know When and Where to Apply for Credit
The Right Way to Apply for Credit
After Bankruptcy
When I began my recovery from bankruptcy, I went through a short period
when I thought that I would never be approved for credit again.
I quickly found out that this kind of thinking would delay my recovery. The
same is true for you. Most lenders need to see that you can be trusted with
credit before they will consider you.
Not only should you apply for new credit, if you do things the right way, you
WILL be approved.
Think about it. You can’t avoid credit forever, and if you want to make big
purchases like a house or a car using credit, you have to show lenders that
you have been able to be responsible since your bankruptcy. Avoidance is not
recovery.
So…how do you know where to start? Should you take the first low limit
credit card offer you receive in the mail? (Hint: NO!) On the next few pages,
I’ll detail the types of credit to apply for, in order, and a basic outline of how
to get approved for each.
Secured Credit Cards
Secured cards are credit cards that are “secured” with a deposit that the
lender holds in either a savings account or a CD. Your credit line will usually
be the same amount as your deposit. You don’t have access to the money
while the card is secured, but you do have a line of credit. The goal is to pay
off the balance every month just like any other normal credit card.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
You want to have two to four major secured credit cards (e.g., Visa, MasterCard).
I recommend starting with one or two secured cards. Begin with the highest
limit possible. Most legitimate secured card issuers will allow you to deposit
a maximum credit limit from $5,000 to $10,000. Try to get as close to the
maximum credit limit with your initial deposit as possible…increasing the
credit limit as high as allowed as soon as you can (this is important)…then get
another, and another…until you have up to four major bank cards.
Pay on time for 24 months. Then ask your secured card lenders to “graduate”
your cards to unsecured cards. Graduation means the lender will review your
account history and decide if they will give you your deposit back and graduate you to a new unsecured bankcard.
The best secured credit cards for recovery from a bankruptcy don’t rely
heavily on your FICO credit scores. However, the higher your credit scores,
the more options you will have to get approved for multiple cards at the best
rates and terms.
Car and mortgage loans are necessary to establish a good mix of credit…but
major bank credit cards carry more weight with FICO than other types of
credit. Whatever is holding you back from getting 2 or 4 secured bank credit
cards, build a bridge and get over it. It’s just that important.
Retail Cards (Store and Gas Cards)
After you have established yourself with a couple secured cards over 6
months, you should attempt to open one or two retail credit cards (also commonly known as store or gas cards).
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Lesson Nineteen: How to Know When and Where to Apply for Credit
This can help you in a couple different ways. Having one or two store cards
is just more evidence to other lenders that you are responsible enough to
handle multiple credit accounts. But more importantly, when these types of
cards report to the credit reporting agencies they can also help your credit
scores (as long as you don’t max them out), because the FICO® scoring model
likes to see a healthy mix of different types of credit.
Unfortunately, getting a store or gas card is not as simple as going up to any
cashier or having the store manager review your application. Most retail
cards are issued by one of three companies (GE Money Bank, Capital One,
and WFNNB).
For the most part, these large companies are unfriendly toward bankrupt
applicants. However there are a few retail cards that are “easier” to get if you
have filed bankruptcy.
TIP: According to our research, the Target store card and Marathon gas card offer the best programs for people with a bankruptcy
on their credit reports.
Auto Loans
Many people with low credit scores think that they have only one option
when trying to buy or lease a car. But, this is not always the case. You don’t
have to settle for a 28% loan from AmeriCredit®. You can do better…you just
have to know the right sources to go to (and the right questions to ask when
you get to them).
If you need a car loan after bankruptcy, your best option is to work with a
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Lesson Nineteen: How to Know When and Where to Apply for Credit
captive lender. (e.g., Ford Motor Credit). Captive lenders (also called manufacturer lenders) are, basically, lenders who finance just one manufacturer’s
cars. For example, Ford Motor Credit finances Ford vehicles. GMAC (now
called Ally Bank) finances General Motors vehicles. You get the idea.
Below are the three types of lenders you can use to finance a car, with a
detailed description of how each works.
Captive Lenders/Manufacturer Lenders
Captive lenders (also called manufacturer lenders) are, basically, lenders
who finance just one manufacturer’s cars. For example, Ford Motor Credit
finances Ford vehicles...you get the idea.
So, when dealing with captive/manufacturer lenders, keep in mind...
1. Captive lenders have special incentives (low rates and rebates) on
almost all new cars. They also have certified, pre-owned programs
for used cars.
2. Find a dealer that sends the majority of their finance deals to their
captive lender. That dealer will have more buying power than
other dealers.
Even though most new car dealers use the captive lender as their primary
lending source, there are exceptions. The exceptions are easy to find out.
Just ask the finance manager at the dealership, “Who does most of your
finance deals?”
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Lesson Nineteen: How to Know When and Where to Apply for Credit
If the dealer says, “Ford finances most of our deals,” you’re going to want to
get your car financed through Ford Motor Credit. It’s obvious that the dealership has a good relationship with Ford, and that leads to better deals for
you.
Banks and Credit Unions
I’m sure you’re familiar with the concept of getting loans through banks and
credit unions. For the purpose of car loans, both essentially function the
same.
So here’s what to keep in mind...
1. Be sure the bank or credit union reports to all three national
credit reporting agencies.
2. If your FICO® credit scores are high enough, the majority of the
time it is better to go through banks and credit unions if you’re
buying a new car with rebates. Often, with a captive lender, you’ll
either get a rebate or a low interest rate—but not necessarily
both. However, with a bank or credit union, you can take advantage of the rebate the manufacturer is offering and get a lower
interest rate than what the manufacturer’s captive lender offers.
Again, this only works if you have high credit scores.
3. If you’re going to get financed through a credit union, the dealer
will offer to sign you up as a member for the credit union on the
spot (99% of the time). Usually, that means you’ll qualify for an
additional .25% to .75% rate reduction. It’s really easy for the
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Lesson Nineteen: How to Know When and Where to Apply for Credit
finance director to “forget” to mention that reduction to you—
so make sure you ask for it. Be firm and hold your ground—you
deserve that reduction, so make sure they give it to you.
4. If you finance a car loan through a bank or credit union, you’re
establishing a lending relationship. Pay back your loan as agreed,
and you’ll have a good history with the bank or credit union so
you’ll be able to use them for other types of loans, such as personal loans, business loans, or a mortgage. Captive lenders can’t
offer personal loans, IRA’s, or mortgages.
Finance Companies
Finance companies are your last resort. However, they are sometimes a
necessary evil. It all depends on how low your credit scores are, and how
important it is for you to buy a car. If you use a finance company, you’re going
to pay outrageously high interest rates. There’s no way around it. So, here’s
what you need to know about finance companies...
1. If you’re bankrupt and/or you’ve missed any past auto payments—
a finance company may be your only option.
2. As much as I hate saying something positive about them, Capital
One® may be the best finance company to use because they have
a tiered rate system. Most finance companies offer just one flat
interest rate—usually somewhere between 18% and 24%. Capital
One, on the other hand, offers different rates, depending on your
past credit history and credit scores. I’ve even seen rates as low as
7.25% (with little-to-no money down).
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Lesson Nineteen: How to Know When and Where to Apply for Credit
3. If you must use a finance company, see if you can trade in your car
for another car at a dealership that can give you a lease or loan at
a captive lender, bank, or credit union at a lower interest rate. The
rule of thumb is: wait until you’re halfway through the loan with
the finance company before you attempt a trade-in. Typically, for
this strategy to work, your FICO® credit scores must be at least in
the mid-600s.
4. If your FICO credit scores increase within a year or two from
buying the car—you can shop around for a bank or credit union to
re-finance your loan.
Mortgages
In many cases, a mortgage is easier to get after bankruptcy than a normal
unsecured credit card or auto loan.
Mortgage lenders look at many different factors on your application, but
there are a few key things you should focus on. The first is your middle FICO
score. Mortgage lenders review all three of your credit scores, but they only
care about your middle score.
Before you start the mortgage process, you’ll need a middle FICO credit
score of around 620 (although a few lenders will approve you with a 580
score). A middle FICO score of 660 gives you even better options in your
rate, down payment, and fees. And of course, a middle score over 700 is the
brass ring.
Mortgage lenders will also look at your time after discharge when considering your application. Once you reach 2 years after discharge (if you filed
Chapter 7), you’re ready to apply with an FHA (Federal Housing Association)
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Lesson Nineteen: How to Know When and Where to Apply for Credit
approved lender. A Chapter 13 filer only needs 12 months after filing.
Finally, mortgage lenders need to see that you’ve established new credit
after bankruptcy. Typically, you’ll need at least two or three new credit
accounts with good payment histories to be approved for a mortgage at the
best terms.
Unsecured Credit Cards
Once your FICO scores break 720, and you have at least 4-5 years from your
discharge, you should be ready to apply for normal unsecured cards with
prime lenders.
And I’m not talking about the low limit unsecured credit card offers you get
in the mail right after your bankruptcy from lenders like Crapital One and
First Premier Bank.
With scores over 720, you should be able to be approved by several credit
card issuers. Many will not accept you with a bankruptcy on your credit
reports. So the goal is to screen lenders well before applying to avoid a credit
inquiry.
Good places to start are the local community banks, regional banks, and
credit unions in your area. Just make sure you interview your lenders. Don’t
assume.
I know this may look intimidating to you at first. But remember, you don’t
have to get all of these types of credit at once. Start slow, and before you
know it, you’ll have all the credit you need.
Establishing these type of accounts combined with a long, on-time payment
history will do miracles for your credit reports and credit scores.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
11 Factors That Determine When
to Apply for Credit
Knowing when you’re ready to apply for credit depends on several things…
1. What you’re applying for
2. What type of bankruptcy you filed
3. How much time has passed since your discharge
4. What your FICO credit score(s) are
5. How you’ve paid your bills since your bankruptcy
6. What new credit you’ve established since the bankruptcy
7. Which credit reporting agency they use to make a loan decision
8. If you’re working at increasing your credit scores by attempting
to get deletions
9. If you’re increasing your credit scores by paying off, paying down,
or removing inaccurate information from your credit reports
10. How much money you can put down (with some lenders)
11. If you have any other negative information appearing on your
credit reports (e.g. foreclosure, charge-off, lien, etc.)
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Lesson Nineteen: How to Know When and Where to Apply for Credit
1. What you’re applying for
Lenders have different credit guidelines, or rules, to determine if they will
approve you for credit.
For instance, if you’re seeking credit for a secured asset (i.e., car, mortgage,
etc.) it’s easier to get approved for than unsecured credit (i.e., bank credit
cards).
It’s very possible you will be approved with one type of lender, but not
another.
My friends Randy and Holli purchased a luxury home two years after their
bankruptcy was discharged. They also financed two new luxury cars. Feeling confident with their credit, they applied to finance a water softener after
moving into their new home…and were promptly DENIED.
Different lenders have different rules.
So it’s important to know the rules your lender has before you apply for
credit.
How do you do that?
You ask the lender before you apply for credit.
2. What type of bankruptcy you filed
There are two main types of bankruptcy filings…Chapter 7 and Chapter 13.
If you filed Chapter 7 you should proceed to apply for credit the moment
you’re discharged. A discharge can usually take 90 to 120 days depending on
how busy the court is in your area.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
Chapter 13 bankruptcies work differently. This is when a filer agrees to pay
back all or a portion of their debt over a period of 3 to 5 years. The thing to
remember about getting credit with a Chapter 13 is that most new credit
needs trustee approval during your bankruptcy. Once you become discharged you no longer need trustee approval. It’s my belief that a Chapter
13 filer should focus on two things during their bankruptcy: increasing their
credit scores and secured bank cards.
Most lenders won’t talk with you until you’re discharged anyway. So even
if you have trustee approval, it won’t matter. You need a willing lender. The
exceptions are: some secured bank card providers, mortgage lenders, and
car lenders.
3. How much time has passed since your discharge
The more time that’s passed since your discharge the better…but it’s not the
only thing with most lenders.
For instance, FHA mortgage lenders specifically need 2 years after discharge
from a Chapter 7 to qualify. Other types of mortgage lenders are stricter.
Captive car lenders usually prefer six months after discharge, but that can be
overcome with a down payment.
Credit card lending guidelines seem to change weekly by lender. Low limit
unsecured cards are easy to qualify for if you want that type of credit (but
that is NOT recommended). Normal unsecured credit cards are challenging
to get until your bankruptcy no longer appears on your credit reports, and
they are the most difficult lender to get straight answers from before you
apply.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
4. What your FICO® credit score(s) are
The key to getting all the credit you want and deserve is to have the highest
FICO credit scores possible.
Some lenders will consider your score(s) the most important thing…other
lenders not so much. Car lenders care about scores, but look at your entire
situation. Low limit unsecured bank cards are offered to anyone who can fog
a mirror. Normal unsecured cards’ approval requirements are based primarily on FICO score, income, how long it’s been since your bankruptcy, and your
debt-to-income ratio. Secured cards are easy to get approved for (when you
apply with the right lender—one that likes people who filed bankruptcy).
A score is important to an FHA mortgage lender, but only determines your
interest rate. Bottom line…a higher score means a lower rate. Conventional
mortgages require a much higher score, money down, and more time after
discharge.
Forget about your local banker or credit union. Personal loans shouldn’t even
be considered until after the bankruptcy no longer appears on your credit
reports.
5. How you’ve paid your bills since your bankruptcy
Late payments after bankruptcy are the kiss of death. One missed payment
(if it can be explained) can be worked around for an auto loan, but anything
more severe will send you into “subprime financing” with many lenders.
A missed payment won’t hurt your chances of a low limit unsecured bank
card…as long as you can still fog a mirror. Forget about a normal unsecured
bank card with anything negative after bankruptcy. You’re okay with a
secured card as long as it’s not too severe. Bottom line…negative credit after
a bankruptcy when trying to obtain retail cards is iffy at best.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
However, when seeking an FHA mortgage, a missed payment here or there
can be overcome with the right mortgage lender on your side. And it’s possible to overlook a missed payment with a conventional lender (as long as it
can be explained). To qualify for a personal loan, you need to have paid everything on time since your bankruptcy.
6. What new credit you’ve established since the bankruptcy
Most lenders don’t like to be first to give you credit. There are three exceptions to this rule…low-limit unsecured bank cards, secured bank cards, and
an FHA mortgage. Everyone else prefers to see footsteps in the snow. The
more you show a prospective lender that you’ve re-established yourself and
have paid your debts as agreed, the closer you’ll be to getting approved.
7. Which credit reporting agency they use to make a loan decision
We each have three credit reports. Most lenders use one of the three credit
reporting agencies to make a loan decision. Find a lender that uses your best
FICO score from the three reporting agencies and you’re heading in the right
direction. You know that mortgage lenders look at all three FICO scores and
use your “middle” score, but what you may not know is that some luxury car
lenders are pulling all three credit reports and using your HIGHEST score.
This practice makes a lot of sense to me. Find out which credit reporting
agency has your highest score and find lenders that use that score.
8. If you’re working at increasing your credit scores by attempting to
get deletions
You won’t receive a notice that says, “You just got a deletion from your
credit reports, please check your score.” It’s up to you to track the amount
of deletions you receive, then decide when you should spend the money to
purchase your three FICO scores or apply for a mortgage prequalification to
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Lesson Nineteen: How to Know When and Where to Apply for Credit
get all three scores. Even score monitoring services from FICO® and Equifax®
don’t acknowledge deletions. (However, I will say that FICO’s score simulator
is a great tool to monitor your progress.)
9. If you’re increasing your credit scores by paying off, paying down,
or removing inaccurate information from your credit reports
Again, you won’t receive a notice that says, “You just paid off a credit card
account, please check your score.” It’s up to you to track the this activity,
then decide when you should spend the money to purchase your three FICO
scores or apply for a mortgage prequalification to get all three scores.
10. How much money you can put down (with some lenders)
This is especially true with car lenders and mortgage companies. Although
it is very possible to get a no money down deal on the right automobile
(financed by the right captive lender), an FHA mortgage does require a 3.5%
down payment. (There are other sources for dealing with a mortgage down
payment…try www.naca.com.)
11. If you have any other major negative information appearing
on your credit reports
Many people think they have done everything right, then go to apply for a
loan, and get denied. This is often because there was another item such as
a foreclosure or unpaid tax lien that appeared on their credit reports. Each
lender deals with this differently. There may be work-arounds for some good
auto and FHA mortgage dealers. Many secured card issuers will approve you,
but it could affect your ability to transition into an unsecured card. Normal
unsecured credit card lenders will not look kindly on most of these items.
The same is true for personal loans and conventional mortgage lenders.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
Where to Apply for Credit
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New Car
Ford Motor Credit, GM, or Chrysler (in that order).
Used Car
Ask what options the dealer has and compare.
Low Limit Unsecured
Credit Card
Beware: Look at the terms and conditions.
Avoidance recommended.
Normal Unsecured
Credit Card
Consider once your scores are above 740+. Try
your local community bank, credit union, or
regional bank. Ignore large national banks. When
the economy improves in 5 years or so a 700 score
will be good enough again to qualify.
Secured Card
Look at a lender that specializes in offering
secured credit cards. Not a lender who created a
secured card as an afterthought, or one of their
hundreds of financial products.
Retail Credit Card
Target
Gas Card
Marathon
FHA Mortgage
Any FHA lender with experience in helping people
who have filed bankruptcy.
Conventional
Mortgage
Once you have 4 years after discharge and a
middle score over 680 try your local community
bank, credit union or regional bank.
Mortgage Refi
Always approach your existing lender first.
Personal Loan
Small community bank, credit union, or regional
bank. Start small, like with overdraft protection…
then work your way up.
Finance Company Loan
Avoid at all cost.
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Lesson Nineteen: How to Know When and Where to Apply for Credit
The Most Important Questions to Ask Lenders
Before You Apply for Credit
The following is a list of questions that you MUST ask a lender when you are
trying to establish credit after a bankruptcy.
By asking these questions you determine if you are working with the right
lenders.
1. Do you review credit reports when someone applies for credit with
you? (The answer will almost always be, “Yes.”)
2. Since I live in [enter your home state here], which credit reporting
agency do you use as your primary source for credit reports? (This
answer will vary depending on where you live. The point is that you
want to know which of your three credit reports a lender is planning
on reviewing before you complete your application. And once you
know the answer, you’ll know to only apply for credit with lenders that
use your highest FICO credit score.)
3. Do you use a FICO score to determine my credit risk? (Again, the
answer will almost always be, “Yes.”)
4. If the answer to #3 is, “Yes,” then, ask them...“Do you use the regular
FICO credit scores or FICO Industry Option scores?” (You want to
determine if they are using the standard FICO score or if they are
using one of FICO’s Industry Option scores—especially for your auto
lenders or credit card lenders. There’s not much you can do about the
type of score a lender uses, but it’s still good to let the lender know
that you know a lot about scoring and you’re not going to be taken
advantage of. That being said, the chances of them even knowing what
an Industry Option score is pretty rare.)
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Lesson Nineteen: How to Know When and Where to Apply for Credit
5. How does a previous bankruptcy affect your lending decision? (This is
where you will find out if the lender will automatically turn you down
because of the bankruptcy, or if they will consider it if a certain amount
of time has lapsed.)
Once you get the answers to all of these questions, it’s time to ask about the
type of offer you’re going to get.
6. If I have the highest FICO® scores possible, what is the best rate you
can offer me? (Now you’ve just set your target rate. Anything less than
that will cost you more in interest or you may not get approved.)
7. What is the minimum FICO score needed to get the best rate? (This
will tell you right away if you are going to be able to get the best rate or
if you’ll have to settle on a higher rate.)
8. What is the minimum FICO score needed for approval? (This question
is really reserved for people who have very low scores and need to see
if they would even qualify. Remember, it’s important to avoid a credit
inquiry if at all possible. Asking this question will help.)
9. If I have a FICO score of [enter your FICO score here], what kind of
deal will I get? (This should give you enough of the specifics of the loan
that you can decide if you want to officially apply. The lender will probably have some questions for you about your income, etc. That’s fine.
Just don’t give out your Social Security number. A two-way dialogue is
your goal.)
If you are talking to a lender that doesn’t know the answers to these questions, or if they refuse to answer them, then you need to move on to another
lender. Trust me, there are plenty of lenders out there that will work with
you. You don’t need to waste time with the ones that don’t want to help you.
Good luck and enjoy the experience!
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How to Know
When &
Where
to Apply for
CREDIT
Discover when your credit is
good enough to get approved
Copyright 2013 LifeAfterBankruptcy.com. All rights reserved.
This Lesson can be freely distributed for personal use without
permission, but may not be altered in any way. In addition, the Lesson,
or any portion thereof, may not be used, copied, or distributed for
commercial purposes for any reason without written permission from
LifeAfterBankruptcy.com and Stephen Snyder.
http://www.stephensnyder.com/howtofix
Copyright 2013 LifeAfterBankruptcy.com