Improving Credit After Bankruptcy
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When you’re dealing with mounting debt, filing for bankruptcy can help you regain the financial security you need to move forward with your life. Still, bankruptcy is a taboo subject and many people steer clear of this option because they’re worried about how it will affect their credit score.
While a bankruptcy filing stays on your credit record for 7 to 10 years, you can regain good credit again after bankruptcy.
Here are some steps you can take to improve your credit after bankruptcy.
Correct Reporting Errors
It is very common for people to have errors on their credit reports. It is even more common after a bankruptcy has been filed. Creditors are quick to report to the bureaus but not quick to update or correct inaccuracies. It is wise to wait about 60–90 days after your bankruptcy has been discharged and closed to check your credit. This allows sufficient time for all your creditors to update their records and report correctly. If you haven’t pulled your free credit reports for more than 12 months, then pull reports for all three reporting agencies at www.annualcreditreport.com. If there are any items on there that are incorrect, then you can dispute them directly with these credit reporting agencies.
It is not difficult to file a dispute. Just report to the credit reporting agency what item is wrong and what it should be. For example, if your report shows you still owe Citizens Community Credit Union $500 and it was included in your bankruptcy, then you just tell the reporting agency that it should show “balance $0.00”. The credit reporting agency then has 30 days to correct it. If they refuse to correct it or if you run into any issues, then give us a call.
Get a Credit Card or Small Loan
One way to start rebuilding your credit is with a credit card. Credit cards are not always a bad thing when you use them wisely. You should first try a smaller financial institution and apply for a low-limit credit card. Shortly after a bankruptcy, you might need to get a secured credit card. That is where you put a deposit down to secure the card and your credit line is equal to that amount. You will usually need to wait about 6 months after a bankruptcy is over to get a card that does not have extra fees like set up fees or annual fees. Once you have a card, you should use it for small purchases and pay it off in full every month.
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Pay All Debts on Time
If you reaffirmed a car loan during your bankruptcy, make sure to make all payments on time and review your credit report to verify that the car lender is reporting the on-time payments. If the lender is not reporting on a reaffirmed debt, contact the lender and file a dispute with the credit bureau(s).
Get a Joint Loan with Someone Who Has Good Credit
It is a good policy to never co-sign a debt for someone else and to never ask someone else to co-sign a debt for you. However, if the loan is small and you can comfortably pay it back, then you can ask someone with good credit to co-sign a loan for you. You can typically get a small personal loan from a bank or credit union for this purpose. Pay the required payment every month. Even though you may be tempted to pay it off early, just make the regular payments over a year or so. This results in the credit reporting agencies recognizing that you can pay a loan every month on time.
Keep a Pre-Bankruptcy Account Open
When you file a bankruptcy, you must list everyone you owe money. However, this does not stop you from requesting a credit card company keep your account open. You will have the best luck with this if the account balance is $0.00 when you file the case. The extra benefit this has is it enables you to have a longer credit history. The length of a person’s credit history can make up 10% of the total credit score. While you can never force a credit card company to keep your account open after a bankruptcy, you can be proactive and pay off a small balance before filing and call the company before filing and ask them to keep the account open (do not incur credit during your chapter 13 without prior approval).
Set a Budget
Create a budget that includes all your income and expenses. Stay on budget by entering your income and expenses routinely. This is to help you not have an inadvertent negative entry on your credit report by paying something late. There are many smart phone apps and websites that help you create a budget, such as this option from the Federal Trade Commission.
Pay Your Bills on Time
This goes without saying, but a late payment will stay on your credit for at least 7 years. A late payment after a bankruptcy has an exponentially bad effect. The credit scoring algorithms are set up to reward you for proving that the bankruptcy was the final low point. Late payments after bankruptcy prove the opposite and makes it really hard to rebuild credit.
Look at Your Credit Report Like a Future Creditor Would
When a bank is considering you for a mortgage or a car loan, what do they think when they see you have an open department store card with a balance? They think “this person can’t even afford to buy clothing. How can a person who can’t afford clothing afford a house payment?”
Try to look at each item on your credit report like a future lender looks at it. Soon you will instinctively know what you need to do to have a great looking credit report and a resulting high credit score.
Understand the End Goal
The end goal is this:
- Three major credits cards with a $0.00 balance and a total available credit of about $50,000
- No missed payments on any secured loans like a home loan or car loan
- The longest credit history possible
- No outstanding loans for items that aren’t necessities like RV or Boat loans
- No store or gasoline cards
When you are taking steps to get to this goal, you will start with a very low limit credit card and ask for an increase in your credit limit every 6 to 12 months. Once you have one or two major credit cards, then you can cancel any secured credit cards or store cardsthat you used a steppingstones to start building credit.
Rebuild Your Credit Score After Bankruptcy
If you’re ready to file for bankruptcy or want to know your options, the bankruptcy attorneys at OlsenDaines are here to help. We understand how overwhelming and stressful it can be. We have offices throughout Oregon and Washington with experienced attorneys ready to answer any questions you may have about bankruptcy. Give us a call today for your free initial consultation!Back to Bankruptcy Attorney