Sunday, 9 February 2020

How To Rebuild Credit After Filing Bankruptcy


Today I want to talk about rebuilding your credit or get financing after you've filed for bankruptcy. First of all, there's a misconception about how bankruptcy is a death sentence to your credit or your access to credit for 10 years in the case of chapter 7 because it appears on your credit report for 10 years, it pervasive because of how long it's on there and then in the case of chapter 13, it's on there for 7 year. But when it comes to chapter 7 and how long you're going to be unable to qualify for certain types of loans and credit, there's a lot of misinformation out there.


3 Legit Reason To Rebuild Credit After Bankruptcy

When you filed for chapter 7 bankruptcy and in today's economy where we ran out of a recession who knows, in this economy legitimate reason to go out and get credit will include keeping a roof over your head so a mortgage or maybe you need to refi a mortgage take advantage of the lower interest rate, a car for dependable transportation or education if you're going to go back to school or to support a child like a Parent Plus a loan.


  • If you want to get FHA type of underwriting, you need to usually have 620 scores, you could do it with a 580 but 620 is common, and you're time-barred after a chapter 7 bankruptcy from being able to do that not just because of a score, but 2 years, that's the underwriting timeframe. When it comes to getting into a car lot and getting the decent rate you're looking at 12 months probably after your chapter 7 discharge, and then for school loans, it could be as much as 3 years for the federally back loan. 

Work that into your timeframes and suddenly bankruptcy can beat out consolidation as far as how soon you'll have access to credit again depending on the circumstances and can compete easily with the settlement because in order to settle you have to fall behind significantly. Let's say it takes you 12 months to settle all your debt and another 12 to 24 months for your credit to bounce back, this chapter 7 timeline for financing is very competitive and nothing competes with it like I mentioned as far as cost, saving and times because bankruptcy can take 90 days.


How To Rebuild Your Credit

Rebuilding your credit is sometimes contingent upon what you kept open in bankruptcy, somebody who reconfirmed their mortgage, they're obviously going to continue to pay that because they want to keep their home, so that's a positive that stays on your credit versus somebody who didn't have that, you have a little bit more building to do, if you already have a car loan and you reconfirmed your car loan, what you can do in a bankruptcy and you continue to make monthly payments on that, that's helpful.


  • But, when you're discharging all of your debt within a couple of months, you are going to often get pre-approved credit offers in the mail. Capital One is a great credit rebuilding creditor out there that will take over as long as you didn't discharge their debt in chapter 7 which you can still get a capital one card later but not immediately.

There are other unsecured creditors out there that will give you unsecured credit card debt after a bankruptcy within just a few months, so pick one and obviously, your rates are going to be terrible and the available credit limits aren't going to be very high, but you take advantage of one and maybe two tops. If you haven't had a car loan and by the way, on those credit cards you really just want to pay them off every month, use them for a latter or something but just don't get in the habit of using the cards for any expenses or bills or anything because it can become overwhelming, you want your credit utilization on those cards, especially because they're probably going to be smaller limits to be under 30% and preferably under 10%, so just pay them off each month. After 6 months of consistent doing that, you'll look and see that your credits can start to improve. 


Getting Yourself Added As An Authorized User

Sometimes that means your parents, what if your mom or dad has a long-established account 15 to 20 years credit card, American Express or Chase Or something like that, and they add you as an authorized user, you don't even have to have a card, they can just add you as an authorized user it will show up on your credit report and they can get the card mailed to them or you can hand it to them when you get it and they and you never use it. But you get the benefit of some of that depth of credit history showing up on your credit because you probably destroyed some of that depth of history when you file bankruptcy and got your credit cards included in the discharge. You don't have that history long amount of time with an established account, but you can borrow it from somebody who likes you. 


Get An Unsecured Card

You can also open secured cards, secured means you have money on deposit if you put $500 into an account that is savings, it secured the $500 limit on the card, you use the card again for groceries and pay it off every month after you do that often for 6 months you have the card open for 6 months you can take the $500 out, turn that secured card into an unsecured card and then over time start to get credit limit increases every 6 months, every year sometimes. I like a bank of America because that $500 is an amount that most of us can come up with over a short period of time to secure and open the account, your local credit union and your current bank might have these kinds of programs, so talk to them about that and see what the deposit rate is going to be, I've seen some as high as $1,200 and if you have that to work with, fine go for it, but try and look for smaller ones that you can start out with.

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