The BIG BK - Your Credit History After Bankruptcy
Let’s face it, sometimes you just run into something out of your control, huge medical bills, a freak storm that destroys your home when you lack flood insurance, losing your job, divorce...and when these things occur, the only option, it seems, is to declare bankruptcy. But this doesn’t mean that your life is over. The truth is more than sixty thousand people file for bankruptcy every month. So if you find yourself in this situation, don’t worry, you are not alone. And no matter what got you to this point (everyone has a very unique situation) it is what you do after the bankruptcy that matters.
Lesson #1: Once the bankruptcy is filed, all open lines of credit including but not limited to auto loans stop reporting to the three major credit bureaus. In most cases, your credit score drops to the low 400’s during the bankruptcy period. Once your bankruptcy is discharged, you may start reestablishing your credit. The sooner you start, the more money you save on all types of financing.
Lesson #2: Once your bankruptcy is discharged, you are starting “fresh”. In other words you don’t have any credit on file. Your credit score is pretty low, usually between 400 and mid range 500’s. You will start receiving offers in the mail for secured credit cards, pre-approved auto loans practically begging for your business. As you review these offers and read the fine print, you will discover hidden costs like monthly, annual, and possibly activation fees, higher over-the-limit fees and outrageous annual percentages as high as 31%. These types of offers are designed to trick you into thinking that you will be able to re-establish your credit score. You may be approved for a $500 limit on a platinum visa card, but the reality is you will pay $200 in fees before you even activate it. The bottom line is: stay away from offers that ask for your hard earned money in return for a plastic card in your wallet.
The secured card: if you have time on your side and you want to start re-establishing credit, we advise you to do your own independent research and look for legitimate financial institutions that offer secured products. Capital One Secured Master Card is one option, offering you a secured credit card which will report to all three major credit bureaus for an annual fee of $29. Other institutions that offer secured options are Wells Fargo, US Bank, and USAA. You may find a selection of secured credit cards by visiting www.bankrate.com.
Before you apply for a secured credit card and make a deposit to secure the line of credit, consider the fact that the average time frame to re-establish credit with this option is 1-2 years. Although it might seem the cheapest option, it is very time consuming and you might see your credit score jump only 20 -50 points as you use and pay off the secured balance on a monthly basis.
Lesson #3: If you don’t have time on your side and you are looking to buy a house, refinance your car or simply open an unsecured credit line, then consider hiring a professional company such as Boost Credit 101 to increase your credit score in a matter of 30 days. Although our services will be much more expensive than $29 we will give you results that will save you time and money in the long run.
For instance, if your credit score is 550-650 and you are planning to purchase a vehicle, you might be looking at an average interest rate of 12%. If you finance $10,000 at 12% for 5 years you are looking at over $3300 in interest to the bank. If you hired us to increase your credit score to 700 and you paid us a $1000 for our services, that same auto loan is at 5%, and you will pay approximately $1322 in interest for the full term, more than $1000 in savings. Not to mention that your insurance premium is also directly impacted by your credit score. The higher the credit score,j the lower your insurance premium, as it shows financial responsibility to the insurance companies.
As you explore different options and start re-building your credit, continue to visit us and read about different topics which will help you build a solid credit score and secure a great financial future for you and your family.
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