5 Tips to Rebuild Your Credit Rating After Bankruptcy
Did you know that it is possible to increase your FICO scores and possibly buy a home 2-3 years after bankruptcy? Taking the proper steps to rebuild your credit rating after bankruptcy will be a major key to your success. Here are 5 tips to help you rebuild your credit after bankruptcy.
Consider Secured Credit CardsObtaining secured credit cards is another way to start re-building your credit after bankruptcy. Many of the major banks offer a secured card to help customers build or re-build their credit rating. The process is pretty simple. You will be required to deposit funds equal to your desired credit limit. These funds will be held by the banking institution as security for your new credit card. Once the credit card is issued, you will make monthly payments and pay interest on purchases as would any other credit card. Your payment history will be reported to the credit agencies. Your on-time payments will help re-build your credit.
Another important tip with credit cards:
Keep your balance below 30%! This is called credit usage ratio. Keeping your balance low along with longevity will tremendously help your FICO scores increase. For example, if you open your secured card with a $1,000 deposit, plan to keep the balance below $300 on the card at all times. This will help you obtain a better increase to your credit scores.
Reaffirming Secured Debts in BankruptcyReaffirmed debts are debts secured by property that a debtor chooses to keep and continue paying for after bankruptcy by entering into a reaffirmation agreement. This is common with car loans and mortgages. The process allows a debtor to continue to pay for property under favorable terms obtained prior to filing bankruptcy. As the debtor continues to make payments on the debt after bankruptcy, the creditor may continue to report the payments to the credit reporting bureaus. If the creditor continues to report the favorable on-time payments, it can help increase the debtor’s FICO scores. If the debtor had a favorable credit history with that creditor prior to bankruptcy, continuing to make on-time payments can have be a tremendous help to stabilize and increase credit scores after bankruptcy. One drawback to reaffirming a debt is if you later default, the creditor will be able to pursue all available collection efforts and legal remedies against you, in spite of your bankruptcy discharge.
Talk with your attorney to determine if reaffirming an existing secured debt is the best option for you.
Become an Authorized UserThe authorized user strategy requires someone with mature credit history on a quality credit account adding you as an authorized user. The authorized user has access to use the line of credit while the original debtor remains responsible for the account. The authorized user benefits from the on-time payments that are now reported on his credit report in addition to the original debtor. This is a great strategy to quickly boost your credit score. The down side to this strategy is that your credit can also be damaged if the original debtor makes late payments on the account or becomes delinquent.
Repair Your CreditA Federal Trade Commission study recently revealed that 1 in 5 people have errors on at least one of their credit reports. Even one falsely reported late payment on an account can significantly lower your FICO scores. Checking your credit report regularly can help reveal errors that may be harming your credit rating. You can obtain a free credit report every 12 months by requesting a copy at annualcreditreport.com. Once you have the reports, review them thoroughly for inaccuracies.
Sometimes contacting the creditor about the error can quickly resolve the mistake. Other times it may be necessary to dispute the incorrect information with the credit reporting agency. Although all 3 credit bureaus offer online credit dispute portals, I recommend writing letter to dispute incorrect information. Always provide documentation to back up your claim
Vehicle FinancingMany people are surprised to learn that there are financing options available to purchase a car after a bankruptcy discharge. There are many finance companies that are willing to qualify borrowers for new or used car loans after a bankruptcy discharge. Unfortunately, a recent bankruptcy discharge will usually translate to a less favorable interest rate and terms. Making on-time pay on a vehicle loan is another way to help re-build your credit score after bankruptcy.
These are just a few quick tips you can implement after a bankruptcy discharge to start rebuilding your scores.