How to rebuild
your credit after a bankruptcy - After your bankruptcy is discharged
your credit score will fall dramatically. There are however ways
to rebuild credit and increase your score quite easily. One of the
best methods is a secured credit card. These cards are fairly easy
to obtain and are available through most major banks. Rent to own
centers often report to the credit companies and are another great
way to rebuild your credit. Just be sure to keep the payments manageable
to avoid repeating the financial problems you are trying to recover
from!
When rebuilding your credit after a bankruptcy it is extremely
important to make all of your payments on time. Any adverse payments
on a bankruptcy will limit your options on obtaining a mortgage.
If you are in a bankruptcy or have been recently discharged,
you may still be eligible to refinance your home. Your mortgage
broker will have programs that can fit your needs. Whether its
taking a little cash-out, or simply paying off some items not
covered in the bankruptcy, it is a good idea to refinance to get
you back on your feet.
Many of our customers rebuild their credit by using their home
equity to refinance and take cash out to consolidate debts and
pay off all of their old bills, giving them a lower total monthly
obligation which they can pay consistently every month. It is
a fresh start for customers who are coming out of a bankruptcy,
and paying a mortgage on time month after month is a great way
to improve their credit score.
Make sure that all of your paid off credit cards are closed out.
You should give your credit card companies written request to
close your accounts. Open credit lines with a zero balance (especially
if you have many) can potentially hurt your credit rating. Only
keep the cards you use regularly and the ones you have had the
longest.
You should check your credit report three to six months after
the bankruptcy discharge and make sure the discharged accounts
are being reported as "discharged in bankruptcy". Oftentimes,
creditors report the discharged accounts as charge off, collections,
open unpaid or other such ways which will have a more detrimental
effect on your credit score. It is very important that you keep
all bankruptcy papers, especially the list of discharged creditors.
If you have not filed your bankruptcy yet, be sure to consider
carrying some liabilities through the BK (ie. do not include them
in the bankruptcy). This can dramatically influence your ability
to re-establish credit following the filing, but is not always
available.
There are five major types of information used to calculate a
FICO score and they are listed below. Each type of information
counts as a percentage of a total FICO score and the calculations
may vary a bit from each credit agency. This is a good rule of
thumb to follow:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of credit
Using credit is a proven way to re-build credit after bankruptcy.
If you cannot get a credit card, apply for credit from department/drug
stores and gasoline companies for expenses that you normally pay
cash for. Also apply for a debit card, which you need to first
deposit funds. You may also want to have a relative co-sign your
credit application to ensure approval. Most important of all,
once you are extented credit, be certain to make payments on time.
Once your bankruptcy has been discharged your credit will need
to be cleaned up. Keep copies of all bankruptcy documents and
attain documents from each creditor (credit cards and collection
agencies) that indicate that the debt was removed via bankruptcy.
