Tips for Rebuilding Credit after Bankruptcy

When you incur more debt that you can’t afford to pay, bankruptcy is sometimes the only option. However, although bankruptcy can help you get out of debt, it won’t help your credit score. In fact, bankruptcy can drop your score by 150 points or even more. After you have filed for bankruptcy, you will need to raise your credit score before you will be able to qualify for credit cards, mortgages, car loans and other types of credit. If you are wondering how to increase your credit score after bankruptcy, follow the tips below.

1. Make sure your credit report is accurate.

Having a bankruptcy listed on your credit report will cause your score to drop dramatically, but other factors can still have an effect. After filing for bankruptcy, request a free copy of your credit report and scan it for errors or inaccuracies. If you notice any problems, file a written dispute with the credit reporting agencies.

2. Apply for a secured credit card.

Getting credit after bankruptcy is hard, but it isn’t impossible. Even with the bankruptcy on your record, you may be able to qualify for a secured credit card with your local bank. In order to obtain a secured credit card, you must typically make a small deposit into a bank account. In exchange, the bank will provide a credit card with a credit limit equal to a portion of the bank account’s balance. To increase your credit score, use the card responsibly and make all of your payments on time.

3. Consider purchasing tradelines.

Purchasing tradelines involves adding seasoned credit accounts to your credit history by becoming an authorized user on another consumer’s accounts. The positive information associated with these accounts will factor into your credit score calculations, and your score will typically increase. Depending on the specifics of your credit history and the tradelines you purchase, your score may increase mildly or dramatically.

4. Apply for small credit cards.

Once you have increased your score a bit, consider implying for some smaller credit cards, such as those offered by retail stores. These cards are often easier to qualify for than standard credit cards, and they will still have a positive effect on your credit score if you use them responsibly.

5. Don’t take on too much at once. 

Although applying for new accounts will help you increase your credit score after bankruptcy, you shouldn’t try to apply for too many accounts at once. Not only will you run the risk of taking on more debt than you can afford, but each application will also result in a hard inquiry on your credit report.

6. Watch out for predatory lending.

If you have a recent bankruptcy on your record, you are more likely to be contacted or targeted by predatory lenders. Predatory lenders are creditors who offer loans with inflated fees or incredibly high interest rates. Common examples of predatory lending include payday loans, tax refund advances and loans that are much too high for the borrower to repay based on his or her income and other obligations.

Understanding Your Credit Score: The First Step Toward Fixing It

Your credit score is an important number: it will influence whether or not you get approved for an apartment or home rentals, loans and mortgages, and other types of financial undertakings. For more information about the details of your credit score and how to boost a credit score that’s not so hot, read on.

What Factors Make Up My Credit Score?

The first thing you should understand about your credit score are the factors that influence it. Your credit score is calculated based on an in-depth consideration of your bill-paying history, how much of the credit available to you you’re using, the number of bank accounts you have as well as what type of accounts they are, how long any of your accounts have been open, and any history of declaring bankruptcy or other forms of debt, such as a home foreclosure or debt sent to a collection agency. Your credit score is then calculated according to the following percentages: 35% of your score is based on your payment history; 30% on debts owed; 15% on the length of your credit history; 10% the mix of credit; and 10% on new credit.

Improving Your Score

Since your payment history and debt owed account for the majority of your credit score, focusing on these two aspects first is the best way to boost your credit score. The amount of debt that you owe on your credit card, or on multiple cards, is one of the most pressing influences on a bad credit score, and keeping your credit card balance below 30% of your total limit can help to improve a bad credit score. For example, if your credit card limit is $1000, keeping your balance below $300 will help your credit score. Paying off your card in full each month is an excellent way to work towards a higher credit score.

You can also improve your credit score by establishing a long history of good financial behavior with banks and creditors by keeping accounts open for a long duration of time and paying off your debt on time each month. Creditors also like to see a variety of types of debt that are being paid in addition to credit card debt, such as student loans and loan repayment for a car or house.

How Long Will Improving My Credit Take?

If your credit score is extremely low or if you have large amounts of debt, it could take several years to raise your score significantly. For example, while the statute of limitations on credit card debt, after which the debt is time-barred and creditors cannot collect upon it, might be only a few years (depending upon the state in which you live), your credit report will still show that there was an unpaid debt for 5-7 years.

If you’ve had unusual circumstances that led to your debt, such as a medical accident or the loss of your job, your creditors may be more forgiving if you offer them a short explanation. Other than that, the best way to improve your credit score is simply by paying off the debt that you can while being careful to avoid accumulating more debt than you can handle.

The BIG BK – Your Credit History After Bankruptcy

What does my credit look like after Bankruptcy?  How would I start re-establishing my credit after the discharge?

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 bankrate(dot)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.