Rebuild Your Credit After Bankruptcy

Bounce Bank After Bankruptcy

If you recently filed bankruptcy, here are two things you need to keep in mind:

Nothing in credit is "forever." Although, bankruptcy can remain on your credit report for up to 10 years, its effect on your credit score may start to diminish the day your case is closed. That is, if you adopt responsible credit habits such as (read article at msn.com), paying your bills on time, using only a small portion of your available credit and not applying for too much credit at once.

You have to get and use credit to build your credit score. Living on a cash-only basis may be a smart choice for those who really can't handle credit, but if you want to rebuild your credit score, you can't sit on the sidelines.

With careful planning, you can rebuild your credit and even get credit again. Re-establishing good credit after bankruptcy is possible. It’s just a matter of knowing how.

Get a secured credit card

There are numerous banks that offer “secured” credit cards to individuals who filed for chapter 7 bankruptcy or chapter 13 bankruptcy. Secured credit cards are a great way to help re-establish credit. Secured credit cards are a good choice for consumers who feel they will be turned down for a regular credit card. Secured cards require applicants to open a savings account that secures the credit limit on that plastic. This protects the issuer in case the cardholders cannot pay their balances.

However, consumers should be aware that payment history on a secured credit card isn't always reported to the credit bureaus, and when it is reported, it can actually alert future creditors to a troubled credit past if designated as a secured card: "It's not helping the person if it's not reported. They need to make sure the card is going to be reported to the credit bureau and that it isn't going to be reported as a secured card," Shore says.  Ideally, the secured credit card issuer will report responsible credit card behavior without specifying that the payments were made on a secured card.

Mortgage After Bankruptcy

Most people probably assume that obtaining a mortgage to purchase a home, refinance or to consolidate debt after a bankruptcy is out of the question. In fact, many people are able to obtain these mortgage services, even 1 day after a bankruptcy discharge in some cases. Loan programs and lenders are available that require little or no time after the discharge of a bankruptcy. Here are a few tips to speed up the road to credit recovery and the mortgage services you desire. First, continue timely paying on items such as your home and cars that were not discharged in the bankruptcy. Having at least a couple credit items you are paying on- time will help. Second, limit the amount of other debts such as credit cards or bank loans. Too much debt will make it more difficult to qualify for a loan, particularly revolving credit accounts such as credit cards.

Your debt-to-income ratio is one part of the puzzle lenders will look at in determining your ability to repay a mortgage. Another important aspect is providing all necessary documents in a timely manner to your loan consultant. Items such as paystubs and tax returns are generally needed in order to establish your income and show the ability exists to repay the loan. Information on your credit report needs to be checked for accuracy. Items that you feel are inaccurate need to be disputed in writing with the three major credit bureaus: Equifax, Experian and Trans Union. This may take persistence to ensure the items are removed appropriately. The removal of this inaccurate information will help establish a more favorable debt-to-income ratio and make the process of qualifying for a loan easier. Finally, if you are unable to qualify for a loan initially, do not despair. Sometimes this process requires a little patience. More options are usually available 6 months to a year after the bankruptcy discharge.

More ways to help you rebuild your credit:

Filing bankruptcy is not the end of your inability to gain good credit again or improve your credit rating. Bankruptcy can give you a much-needed fresh start from debts. Improving your credit score after bankruptcy is also possible.

What is a Credit Score?

A credit score is a numerical expression based on a statistical analysis of a person’s credit files to represent the creditworthiness of that person. A credit score is primarily based on one’s credit report information typically sourced from credit bureaus such as Experian, Trans Union and Equifax.

How can I get a free copy of my credit report?

By law, all consumers are entitled to a free copy of their credit report (does not include credit score) from each of the three credit bureaus once a year. Visit annualcreditreport.com to get yours for FREE.

Lenders, such as banks and credit card companies use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what Interest rate, and what credit limits. The use of credit or Identity scoring prior to authorizing access or granting credit is an implementation of a Trusted system.

Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, employers, landlords, and government departments employ the same techniques. Credit scoring also has a lot of overlap with Data mining, which uses many similar techniques.

Is my credit rating damaged forever after credit card bankruptcy?

A concern that a debtor’s credit rating will be forever damaged upon declaring credit card debt bankruptcy is among the numerous questions a debtor typically asks. Another question is whether the debtor will ever secure a loan again. Believe it or not, it is not impossible to secure a loan again and to improve your credit rating. In several cases, consumers may even begin to notice a slight improvement in their credit scores after filing bankruptcy. How and why?

When an individual declares bankruptcy, a debtor’s credit report is wiped clean. High balances, records of unpaid payments as well as late payments are removed. Accounts that were included in the filing were recorded either as “Included in Chapter 7 Bankruptcy” or “Included in Chapter 13 Wage Earner Plan” depending on which type of bankruptcy was filed.

Improve your credit score in many ways:

Although it will take time and concentrated effort to improve your credit score, it can be done.

Credit Cards – Do’s and Don’ts

Do you know your credit cards make up 30% of your credit score by how you use and manage your credit cards?

You may not realize this, but there are factors involved when managing your credit. Most of us think that if we pay our bills on time that we have a handle on our credit, but this is not always the case. The credit scoring system breaks your credit report down into 5 major factors, and if each factor is not understood or managed properly, you may be throwing away money by not getting the preferred rates that are only available to the most creditworthy individuals-those with the highest credit scores. One of the biggest factors is one that you have the most control over: Amounts Owed. This factor makes up 30% of your credit score, making it one of the most important factors.

Amounts Owed Defined: It is a record of all of your debt and how you manage that debt. This factor is broken down into two categories:

According to Fair Isaac, the creator of the credit scoring system, having credit accounts and owing money on them does not make you a high-risk borrower or give you a low score. What impacts the score is when a high percentage of a person's available credit has already been tapped. This indicates that a person may very well be overextended, making them more likely to make payments late or not at all. When calculating your score, this factor considers the following elements:

DO'S and Don'ts of the Amounts Owed Portion of Your Score

Luckily, the Amounts Owed Factor is one the easiest factors to correct and control. Here are some tips on how to manage your credit better in this area, giving you the opportunity to maximizing your potential for a higher score:

The very first step towards improving your score in this factor is to pull your credit report and make sure that the following information is being reported accurately:

If any of the above information is being reported inaccurately on your reports, you could be losing 25-50+ points.

In order to prove to the scoring system that you know how to manage revolving debt, you MUST have active credit card accounts. Use your cards every month, for groceries, gas, etc. and pay them off every month. If you do not have a credit card at this time and your scores are under 650, immediately apply for an on-line secured credit card at www.orchardbank.com or you can find a list of secured credit card offers at www.cardoffers.com. If your scores are above 650, you may want to consider going to your bank to apply for a card. Exception: Do not apply for credit of any type when you are about to enter into or have already entered into a loan transaction. New Credit temporarily brings down your score due to the debt and the new account.

Keep credit card balances below 50% of the available limit at all times to maintain your score. 3-6 months prior to applying for a loan, those balances should be kept to 30% or less of your limit to increase the score.

If you cannot pay down your credit card balances to 30% of the available limit prior to applying for a loan, try calling your credit card companies to ask for a temporary limit increase without pulling your credit. Tell them you are in the process of wanting to purchase a home and that your balances are affecting your score. Some creditors will oblige if you have maintained a good payment history on the account.

Do not consolidate your credit card debt onto one low interest card UNLESS if after transferring the debt the balance on the credit card you are transferring to is under 30% of the available limit. But you should still use your other credit cards for small purchases as mentioned in 1 above.

Don't close credit cards accounts at all, if possible. 3-5 major credit card accounts are best. I say major because the scoring system frowns upon 3rd party financed credit cards (i.e. Department Store Cards, Furniture Store Cards, etc. You will lose points in two factors when you close a credit card account, both in the Amounts Owed factor and in the Length of Credit History Factor which is worth 15% of your credit score. (These 2 factors combine to make up nearly half of your credit score, so pay attention here.) Once you close the account, the history stops counting. A common misconception by consumers is they believe when you close a credit card account, any bad history on that account goes away. This is not the case. That history stays with you.

Don't open accounts you don't need. Just because credit is offered to you, does not mean that you should accept it. When you receive one of those pre-approved credit card letters in the mail, your credit report has not been pulled yet, so you are NOT approved for the account. Once you pick up the phone to call the creditor, they will pull your report and you will be penalized immediately for the hard inquiry (10% of your score.) It is best to avoid these types of special offer credit cards (including Department Store offers of "Open an account today to save 15% off of your purchase." The scoring system frowns upon 3rd party finance cards.

Installment loans are there for a reason, so paying off your car loan early will not improve your score. The scoring system wants to see that you can follow a payment agreement over a certain period of time (i.e. $250.00 per month for a period of 5 years with no late pays.)

Don't go over your credit card limits, even if it's just one dollar. Doing so deals you a double penalty and you could lose 50+ points from your score. Why? Going over your limit the system thinks that you cannot hold to a creditor's agreement and that you are overextended. Something to note: even if you call your credit card company and they approve an additional $200 over the telephone, you still get penalized.

During transition of an installment loan, don't count on escrow to pay the final mortgage payment on the previous loan. Pay it and be safe. One 30-day mortgage late can cost you 50-75 points no matter how high your score is. That 50-75 points takes a minute to lose, but several months to get back and could lose you the new loan program rates that can save you tens, if not hundreds of thousands.

When it comes to American Express cards, which have no available credit limits, the scoring system uses last month's statement total as your available credit limit. This means that if you spent $5,000 last month, and then $6500 this month, it appears to the system that you are over your limit. As a result, the best way to handle AMEX is to always pay your bill before the statement date.

By following these simple steps, you can take the first step toward improving your credit score in the short term and you can maintain a better credit score going forward. Your credit score is so important to your financial well-being, and it's so easy to manage wisely when you are empowered with the tools to be able to make a change. Learning how to manage your credit is more than half the battle of achieving a credit score that will provide you with the financial opportunities and make your life easier and more enjoyable.

Law Offices Of Roger Ghai, P.C.
We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.

Disclaimer: This website contains general information about various areas of bankruptcy. It is highly recommended that if you are considering bankruptcy as an option, that you seek the advice of an attorney. The information on this Website is not intended to be legal advice and viewers should consult with an attorney.