Question 6: What Are Your Credit Scores

Category: Finance, Credit.

When I first began applying for credit after my bankruptcy I noticed a trend. They all seemed to care about a few key things.

Lenders would ask me the same series of questions over and over again. Of course, now I realize they were trying to quickly assess if I was creditworthy or not. Can you blame them? You see, after you file bankruptcy, lenders will be very cautious when considering if they should extend you credit( and rightfully so) . After bankruptcy your number one mission is to prove to lenders you re now a low credit risk. The right answers to the following six questions.

So what do they want to see from you? Question 1: Are You Discharged? Or, in other words, if your bankruptcy is complete. The first thing a lender will need to confirm is if your bankruptcy is discharged. The reason lenders want to know that you re discharged is because if your bankruptcy is still" open, " then you could technically still add accounts to your bankruptcy( including the lender you re applying with) . Make sure you don t confuse the term" discharge" with the term" filing. " Hopefully you re not one of the poor saps who ve had a bankruptcy dismissed. Not many lenders are going to grant you credit when you still have the ability to include them in your bankruptcy.

Having a dismissed bankruptcy is bad, bad, bad. It s like paying off one of your collection accounts. then realizing the collection account remains on your credit reports. You basically receive all the negative effects of filing bankruptcy- but none of the benefits- since your bankruptcy was not completed. So your FICO credit scores don t increase at all. But there s hope even if you ve been dismissed. They stay the same.

So don t throw in the towel just yet. You can still start the process of increasing your credit scores. Life s a garden- dig it. plant some seeds of hope. and watch as you prosper. Question 2: When was your bankruptcy discharged? The more time that has passed since your discharge- the better. This is very simple. You see, each lender has different credit guidelines.

For instance, you won t be able to finance a new car through a low interest lender until you re discharged. A lender s credit guidelines are essentially their minimum requirements that you have to meet in order for them to approve your application. Being discharged is a basic credit guideline when financing a car after bankruptcy. Just being discharged and sending in your deposit are the two most important criteria. Getting approved for a secured Visa� or MasterCard� is relatively easy. Unsecured credit card lenders credit guidelines vary.

If you discharge debt with some lenders, you ll never get another card with them until that debt is paid back( e. g. , American Express� ). Some lenders won t touch you until the bankruptcy no longer shows up on your credit reports. There are lenders that will give you a second chance- but it won t be soon after your discharge( so don t hold your breath) . How much time you have after your discharge will determine what type of mortgage financing you qualify for. Mortgage lending requirements are more complicated. Anything less than 24 months after your discharge and you re considered a sub- prime borrower. Chapter 13 filers have even more options for getting a mortgage after bankruptcy, most of which are determined by the amount of time since your filing date.

If you have more than 24 months after discharge you may qualify for more conventional mortgage programs. So keep track of how long it s been since your discharge. They are important dates to memorize. Or if you filed Chapter 13, how much time since you filed. Question 3: How have you paid your bills since your discharge? Some lenders even consider 1 day late after the due date to be enough for them to report a 30- day late payment to the credit reporting agencies.

Late payments appearing on your credit reports after a discharged bankruptcy are kisses of death. The reason is that technically, they count everything in the 1- 30 day late payment range the same. Bottom line- don t be late. So even being one day late could burn you. Pay early, worst case on time. Lenders will look to see how you ve handled your credit since your discharge. You simply cannot afford to be late.

And if you think late payments hurt you. collection accounts, and other nasty, judgments things like those will haunt you much more. When they review your credit reports they will see what you re saying is true. You need to be able to tell a lender that you ve paid everything early or on time since your discharge. Question 4: Have you reestablished new credit since your discharge? Although it s good if you reaffirm a few credit accounts through your bankruptcy, it s even better if you can show lenders that you ve established new credit since your discharge. Avoidance is not recovery.

The types of new credit you need to aim for are: - Home mortgage. - Car loan. - Car lease. - Credit union loan. - Bank loan. - Overdraft protection. - Credit card. - Retail credit card. - Gasoline credit card. - Home equity loan. - Student loan. It can be frustrating trying to open that first account- which is why you need a strategic plan of attack. The catch- 22 is that the lenders you really want to work with don t really want to be the first ones to grant you credit. In other words, don t apply for a business loan( which can be tricky to get) if you can t even qualify for a secured credit card yet. I m saving you months- even years- worth of trial and error. But it all starts with you. But you have to take the information and put it into action.

You simply will not recover unless you jump back into the fire and prove to the world you can manage credit effectively. So get to it! Question 5: How much do you have for a down payment? So start saving! It will be necessary in most cases to be able to come up with a down payment or deposit. Lenders don t take food stamps, or post- dated checks.

On the other hand, if you missed or made late payments on your last auto loan, your only option will most likely be 20% down at a high interest rate through a finance company. As a general rule of thumb, if you made all your payments as agreed on your last car, you should plan on no more than$ 500 to finance a new car at a normal interest rate. that is IF you follow what I teach in the free Credit After Bankruptcy seminar. If a car dealer is telling you to come up with more money, you re either at the wrong dealer. or you need to wait until you ve reestablished your credit a little more. Most of the lower- deposit cards have hidden fees. don t report to the credit reporting agencies properly. and usually have higher interest rates to boot. If you want a good secured credit card- plan on depositing around$ 250 to$ 50There are some secured credit cards that you can get that have lower deposits, but I don t recommend them. A down payment on a home will obviously depend on the amount of the mortgage. And I m not talking about some crazy television infomercial that s promising you the world.

Although 3% to 10% of the purchase price is considered the norm- it s more than possible to get a mortgage for no money down. I m talking about real, bona fide mortgage programs. Have a little money down to show you re a playa. So be prepared. Question 6: What are your credit scores? Back when I was recovering from bankruptcy, credit scoring was just starting to become popular.

Of course you knew this was coming, right? You couldn t even purchase all 3 of your credit scores before 200 Today credit scores are used by nearly every lender in the United States and Canada. Most important, you need to know which credit reporting agency has your. .HIGHEST credit score. .your MIDDLE credit score. .and your LOWEST credit score. If you don t know your FICO credit scores- you should. To gain the most leverage over any lender you should choose to work with the lender that uses the credit reporting agency that has your HIGHEST FICO score. A Final Note. This way you receive the lowest interest rate and best terms.

So there you have it. Like my scoutmaster taught me many years ago. be prepared. The six questions lenders will ask you after bankruptcy. Chance favors a prepared mind.