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Columns: Bankruptcy Adviser
Justin Harelik   Expert: Justin Harelik
Bankruptcy Adviser
Use the ULTimate plan to re-establish credit
Bankruptcy Adviser

Recent bankruptcy, auto lease can mix
 

Dear Bankruptcy Adviser,
I filed for bankruptcy in July 2006. I am thinking about leasing a car. What are the chances of it being approved?
-- Steve

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Dear Steve,
Your bankruptcy isn't as much of an issue as you might think. The car company knows that, because you've filed recently, you can't file again for the entire time of the lease agreement. If your income is sufficient to make the payments, you will be under more pressure to fulfill your end of the agreement. From their perspective, this makes you a better risk.

However, the issue that really determines whether you can lease a car is your credit. Even if you have a solid income right now, that's only one component of how lenders review your creditworthiness. Thus, my question to you is: What have you done since the bankruptcy to re-establish your credit?

It is amazing how simple it is, but most people I see who file bankruptcy are so fed up with credit and debt issues that they wait forever to re-establish their credit. Don't do this, Steve. If you haven't already, here's how to start.

First, get over any shame, anger or frustration you may have regarding bankruptcy and your financial situation. These emotional issues can sometimes be the biggest hurdles.

Second, you must look at your credit report and review all negative notations. You need to know when each negative mark can be taken off. That way, if the credit reporting agencies don't remove those negative trade lines, you can notify them and make sure it gets done. This is important to making your score rise.

Third, you must use the ULTimate plan to re-establish a positive credit history. That starts with Use, Limit and Time. Get access to credit, either through a high interest-rate credit card or a secured card. At that time, Use the card at least once every month, even if only for a piece of pizza, then pay the balance off in full. If it is possible to get a second card and do the same thing, that's even better. The sooner you show a new, good payment history, the sooner your score will increase. However, if you ever carry a balance from one month to the next, then you MUST stop using the card until the balance is paid in full.

Every six months or so, request credit Limit increases on the cards. Higher limits mean banks trust you more (because of your good payment history). This translates to higher credit scores.

Maintain this process over Time and your credit will rise. It is possible to establish good credit within a few years if the ULTimate method is followed properly. Steve, I suspect that it may be possible for you to buy (and possibly lease) a reliable used car relatively quickly. Follow the above plan to re-establish your credit and try for a lease (or purchase) every few months. Eventually, you'll get it.

Bankrate.com's corrections policy -- Posted: May 29, 2007
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