Credit After Bankruptcy, Credit Repair
I GOT MY DISCHARGE, NOW WHAT? Three to six months after receiving a Discharge Order it is wise to obtain copies of all three credit credit reports. Credit repair is not part of your bankruptcy legal representation, however attorney will be glad to provide additional services for a fee or you can follow the directions here and get this done on your own for FREE.
Reason for running your credit is that mistakes in credit reporting are not uncommon. Fresh start is not just the elimination of your debts. It should also be resetting your credit reporting and to do that you’ll want to be sure that all of your creditors have reported the debt as part of your bankruptcy and get rid of any erroneous or disputed information. While Bankruptcy remains on credit for 10 years, many clients report seeing 100-200 point jump in their scores (to a range of 600-700) in less than a year. How quickly your credit score will rise depends on many factors and no one can guarantee any particular score, BUT there are things you can do to increase the speed with which your score increases such as when you acquire new credit making timely payments. But, first thing is to check and ensure all creditors reported the bankruptcy so you start with a clean slate.
I advise my clients to run a free credit report about 3-6 months after discharge. Doing it earlier than that might not be helpful as you want to give it some time for the information to be processed and updated. Each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion is required by law to provide you with a free copy of your credit reporting once every 12 months, if you ask for it. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to:
Annual Credit Report Request Service, PO Box 105281, Atlanta, GA 30348-5281.
CREDIT REPAIR: Don’t fall for gimmicks. If there are errors in your credit report, it doesn’t cost anything to dispute mistakes or outdated information. Under the FAIR CREDIT REPORTING ACT (FCRA), both consumer reporting company and the information provider are responsible for correcting inaccurate information in your report. Go to Federal Trade Commission’s: CREDIT REPAIR, FACTS FOR CONSUMERS.A sample dispute letter is provided here and you can cut and paste it from the website.
CREDIT REPORTING AND BANKRUPTCY
Experian, one of the three reporting bureaus, publishes an educational and informative Bankrutpcy and Credit Reporting web page..
GETTING CREDIT AFTER BANKRUPTCY
Credit After Bankruptcy Getting a credit card after bankruptcy is easy. Clients regularly receive multiple offers in the mail even BEFORE their case closes. After discharge, you are likely to find yourself on a regular mailing list for pre-qualified offers. You are advised to stay clear of these offers. These typically come not only with high interest rates but also several types of fees such as: set up fees, annual fees, automatic enrollment in payment protection programs. Taking these offers is not necessarily prudent nor wise. Look at the proposed terms carefully. Understand Credit Card Terms
Give yourself time to stabilize and recover before plunging into using credit again. You can and will reestablish your credit over time. Best strategy is get yourself in the habit of saving money by paying yourself first. Once you get your finances under control, your goal is to build your way to a regular credit card issued by a bank. There are several ways to do this, from applying for a card from a small retailer or gasoline company to getting a secured credit card. Having said that, having bad credit does not mean you can’t get a credit. It just costs more.
Is Having a Credit Card a Good Idea?
Before you try to get a new credit card, be honest about whether you will use it wisely. Credit cards can be dangerous to your financial well-being if you use them to buy things you cannot afford. If misusing credit cards is what caused your credit rating to sink in the first place, then perhaps it would be wise to steer clear of credit cards for the time being. However, there are several very good reasons to have a credit card:
– For an emergency. A credit card can be a lifesaver if you have to pay for emergency expenses that go beyond your savings — for example, repairing a leaky roof or paying for a necessary medical procedure. Charge the expense, and then pay it off as quickly as possible.
- To build credit. A good way to develop a positive credit history is to obtain a credit card and make timely payments. But beware: If you can’t pay the balance off each month, don’t use it.
- To get airline miles or other “points.” If you pay your credit card balance off each month, you can get airline miles or points towards other goods and services for free (assuming your card does not have an annual fee).
- To reserve hotel rooms or rental cars. Many hotels, car rental companies, and other vacation amenities require a credit card in order to make a reservation.
Steps to Getting a Credit Card
If you can’t get a credit card right away, take steps to build credit. In this way, you can work your way towards a credit card:
Open bank deposit accounts Creditors look for bank accounts as a sign of stability and proof that you can pay your bills. In fact, most credit card applications require a checking account number.
Start with a small retail store or gasoline company card. These are often the easiest cards to get. If you get a card, charge items, and pay the bill on time. This will start building a positive credit history for other credit card holders to look at.
Apply for a bank credit card with a low credit line. Next, apply for a regular bank credit card (such as Visa or Master Card) with a low credit line. At first, you may only qualify for a card with high interest rates and a high annual fee. If you use your card responsibly, after a year you can apply for an increase in your credit line and a decrease in your interest rate and annual fee. Or, you can apply for another card that has better terms.
Your Credit Card Application
When you are ready to apply for a credit card, follow these tips to increase the chance that your application will be accepted.
Be consistent with the name you use. Either use your middle initial always or never. Always use your generation (Jr., Sr., II, and so on).
Be honest, but appear sympathetic. Portray yourself in the best light. If your credit troubles were due to a job loss, illness or death in the family, recent divorce, or new child support obligation, be sure to mention this on the application.
Apply for credit when you are most likely to get it. If possible, apply for a new credit card when you are working, have lived at the same address for at least one year, and when you don’t have an unusually high number of inquiries on your credit report in the last two years. Creditors view too many inquiries as a sign that you are desperate or preparing to commit fraud.
Apply for credit where you’ve done business. If your phone company, insurance company, or bank offers credit cards, try them first. If you have a good payment history or good relationship with the business, it will be more likely to give you the card.
If All Else Fails: Secured Credit Cards and Cosigned Credit Cards
If all else fails, consider getting a secured credit card or getting someone to cosign on a credit card. If you choose carefully, these cards can help build positive credit history. But not always — so be sure to shop around, ask questions, and check the terms. However, even if they don’t help build credit, at least you’ll have that piece of plastic if you need to rent a hotel room or pay for a small emergency.
Secured Credit Cards
To get a secured credit card, you open and maintain a savings account which serves as security for your line of credit. If you fail to pay your credit card debt, the bank uses the money in your account to cover the charges. Usually, your credit line equals 100% of your deposit, but sometimes it is less.
Use your secured credit card to make small purchases and pay the balance off each month. If you pay on time for a year, it usually helps build credit. At that time, you can apply for an unsecured card.
Here are some things to keep in mind when shopping for a secured credit card.
Secured credit cards are expensive. Unfortunately, banks often charge an annual fee as well as large application and processing fees for secured credit cards. And the interest rate is high – usually between 20% and 30%. At the same time, the interest rate you earn on your deposited money is often only 2% to 3%.
Check for a grace period. Some secured credit cards eliminate the grace period so that interest on your balance begins to accrue on the date you make a charge, rather than 25 days later. (To learn more about grace periods, see Shopping for Credit Cards.) Without a grace period, you pay interest even if you pay off the balance in full each month.
Get a card that will establish a credit history. Some creditors don’t place much weight on credit history established by a secured card. And others, especially smaller issuers, don’t report to the three major credit bureaus. Ask the issuer if it reports to the credit bureaus — most major banks do.
Look for a card with a conversion option. Some secured cards allow you to convert to a regular credit card after several months or a year.
Cosigned Credit Cards
Credit card companies will almost always issue credit cards to people with bad credit if someone with good credit cosigns or guarantees the application. A cosigner on a credit card agrees to be fully responsible for the debt. A guarantor agrees to pay the debt only if the primary signer defaults. Make sure the credit card company reports payment information to the credit bureaus for your report, not just that of the cosigner.
Your New Credit Card: Manage it Well
Once you get a credit card, continue to build credit by managing your card and debt well. Here are some tips:
- Sign your card as soon as it arrives. Keep PIN numbers in your head. Keep a list of the credit card issuer, account number, and issuer’s phone number in a safe place. That way, you can quickly call to report a lost or stolen card.
- Inform the credit card issuer if you change addresses.
- Don’t give your credit card number to anyone over the phone unless you placed the call and are certain of the company’s reputation.
- Pay your bill on time every month. If possible, pay off the balance each month.
QUESTION: I filed for Chapter 7 bankruptcy seven years ago. I’ve been told that it takes ten years for a Chapter 7 to “fall off” your record. Is there anything I can do in the meantime to get a lower rate on my car loan and credit cards?
ANSWER: There are many things you can do to improve your credit. First, get a copy of your credit report and make sure it’s accurate. To get lower interest rates, ask your lenders. Your bankruptcy is old enough now that it should carry less weight than it did a few years ago. If you have been making your car and credit card payments on time and your recent credit looks good, your creditors may very well lower the rate.
You might also contact your bank and ask whether you can obtain a personal loan with a lower interest rate than your car loan. Use the money from the bank loan to pay off the car loan. You’ll still have to pay the bank loan, of course, but at least you’ll have a better interest rate.
QUESTION: I am attempting to follow the steps to credit repair described on your website. But how will working with the Consumer Credit Counseling Agency affect my credit report in the future? I have heard that a negative mark — a hidden code seven — will be added to my credit report. Also, is it worthwhile to use the online services that offer to consolidate your credit report from all three credit bureaus?
ANSWER: A brush with bad credit will not always leave a mark on that Permanent Record we all fear will follow us about through life. Some creditors report those who are using a debt counseling agency; others do not find the information reportable.
In general, however, creditors are simply regular human beings — who, by happenstance, happen to hold your unpaid bills in their hands. As humans, most of these creditor types like to see others doing something to repay their bills, rather than defaulting or filing for bankruptcy. So making use of a counseling agency probably will not hurt you — especially if you manage to repay your debts. Most will applaud you for rising up out of the flames like a phoenix, rather then just sitting around, allowing yourself to become roasted.
Since you asked, you’re probably best off shying away from the online services that offer to consolidate your credit reports. They usually charge more than you would pay to get your reports yourself — a special insult when you are feeling tapped out in the wallet.
Start by getting your report from one company (one per year is free). If there are problems with that report, get copies from the other bureaus. Otherwise, you can probably just stick with the one.
QUESTION: I was forced to declare bankruptcy last year because of a layoff. I managed to hold on to my house because I did not have equity in it. I have a new job at 60% of my previous salary and am having trouble making ends meet. I would like to negotiate a lower interest rate with the mortgage holder, but am not eligible for refinancing because of the bankruptcy. How can I approach the lender about this? I am assuming that the bank would rather continue to receive my mortgage payments than foreclose.
ANSWER: You are correct in one assumption: few lenders want to force a sale or foreclose. But you might not be correct in your other assumption — that you can’t refinance because of the bankruptcy.
As long as the market value of your house hasn’t declined substantially since you bought it, it’s still a well secured investment for your mortgage holder. In addition, you cannot file for bankruptcy for another six years, and so although your credit report has the negative mark of the bankruptcy, you’re not as bad a credit risk as you would think.
The key for you is to gather documentation showing how much you can pay each month, verifying your income and if possible, substantiating your job security — such as a letter from your employer attesting to your excellent performance, likely longevity, and probable raises. Also, gather up your bankruptcy papers showing which debts you’ve discharged, or other documents that can verify that you have no other long-term debts. Then call the mortgage holder and make an appointment with someone in the credit or loan department. Be up front. But be positive, too.