Get A Secured Credit Card
Reducing your dependence on credit cards can be an important step toward rebuilding credit after bankruptcy. However, the strategic use of secured credit cards can also help you begin to repair your trustworthiness in the eyes of lenders.
Taking out a secured credit card requires making a refundable security deposit and then borrowing against it. While these cards tend to come with high interest rates, if they report to all three credit bureaus, theyre a great option to show responsible credit behavior until youre better qualified for a traditional card with more competitive terms.
Some secured cards even allow you to graduate to an unsecured card after consistent on-time payments. This is a benefit since you wont have to apply for a new, unsecured card when your credit improves,
Keep in mind, however, that applying for a secured card doesnt guarantee acceptance, so take time to research the providers requirements before applying. If possible, choose a provider that offers prequalification so you can see whether youre likely to qualify before agreeing to a hard credit check that can further damage your score.
What To Do Next
Start thinking about new credit: After six months to one year, you will probably be safe to think about new credit. Just like any other financial portfolio, diversification is the key. It is not enough to have only credit cards.
The most important thing to remember is whether it is a small personal loan that you take out or a car to get to work, make sure it is the smallest loan possible. This ensures that you can pay it back on time and avoid interest charges or a late payment on your shiny new credit report.
Get a Secured Credit Card: A secured credit card is a revolving credit type and is used to pay for emergencies, vacations, special needs when you do not have cash. Make sure you only spend 30% of the limit given and pay it off on time. A secured credit line can be obtained from your bank or from a third party creditor that have cards made specifically for rebuilding purposes.
The steps for obtaining secured credit is easy. Research and choose the card that is best for you or simply walk into your local bank branch. Pay an amount that the card company keeps as collateral in case of a default. One important note is, you should be certain that you never, ever use that money.
Get a Credit Builder Bank Loan: Ask if your bank lends money that is put into a secured account that you may not have access to. Once the loan is paid off you may then access the funds. This is a little known way of rebuilding credit without a credit card or to help diversify your credit history.
Beware Credit Card Fees Use New Credit Wisely
After bankruptcy, some companies attempt to charge stunningly high fees for secured cards, sometimes as high as $200 for a $500 card. Talk about adding insult to injury.
However, you have choices. Shop for a low- or zero-fee card, study the fine print, and make the choice best for you. Be on the lookout for interest rates on balances carried over.
Also, make certain your new card company reports to all three credit monitoring agencies. Some dont, and youll want the world to see how exceptionally well post-bankruptcy you is performing.
Once youve secured a secured credit card, you will demonstrate that excellent performance by using the card prudently, never going above 30% of the balance limit, and paying off the balance each month.
When you are comfortable paying off the secured credit card, you might be ready to try for an unsecured card. Once again, anticipate rejection, high fees, or punishing interest rates.
However, given sufficient time and diligence using your secured card balances kept low and paid off each month you should be able to obtain a regular, unsecured credit card one even with rewards or cash back.
But the rules do not change: When you do get an unsecured credit card, keep the balances low and paid off on time monthly.
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Apply For A Loan With A Co
Should you apply for a loan on your own, lenders might deem you risky because of your credit past. Getting a co-signer on a loan can help boost your chances of getting approved. Thats because lenders will take into account the co-signers credit score, which would up your creditworthiness. When someone cosigns a loan, they dont have access to the money. However, they are on the hook for repayment should you be unable to keep up with your payments.
Why this matters: Rebuilding credit after youve filed bankruptcy can help you re-establish your credit profile. By understanding the different options, youll learn how these different forms of credit might help you boost your credit after its been on shaky ground.
How to get started: Explore the different options for establishing a new line of credit and see which ones you think might be beneficial for you. Youll want to take into consideration whether a hard pull or soft pull on your credit is required, what you would use that line of credit for, setting limits on a line of credit, and having a repayment plan in tact so you dont fall into a deeper debt hole.
Check Your Credit Report To Ensure Your Bankruptcy Is Accurately Recorded
Bankruptcy seriously damages your credit report, but there can be errors that make it worse than it actually is. For example, debt shown as active or late instead of discharged might harm your credit report.
Be sure to review your after bankruptcy. If you spot an error, dispute it as soon as possible. Lexington Law can often help you to work to remove bankruptcy related items from your credit report.
Many consumers find unfair credit reporting and outright inaccuracies. Be aware that your old bankruptcy shouldnt linger on your report after seven years or 10 years have passed.
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Other Tips To Help Fix Your Credit After Bankruptcy
Heres some more advice on how to revive your credit score after bankruptcy:
- Avoid : Dont fall for con artists who claim they can remove a bankruptcy from your credit report. Nobody can remove bankruptcy from a credit report before the allotted 7-10 years have ended.
- Avoid frequent job changes, if possible: Your state of employment has no direct effect on your credit score, but lenders may put less faith in borrowers drifting from job to job.
- Keep account balances low: From where the credit bureaus stand, maxed out credit cards are a sign of strained finances. Aim to keep your credit utilization ratio below 30%. Also, keeping your balances low will lower your debt-to-income ratio , which in turn will amplify your shot at landing a low-cost loan.
- Not applying for new credit often: Lenders and credit bureaus take note when borrowers rapidly apply for credit. Its not a good look. It makes you look desperate, which makes you look risky. Remember, lenders abhor risk.
- Saving money: This one is less about restoring your credit score and more about making sure youre financially sound. If youre dealing with the consequences of bankruptcy, youre probably not in the best financial shape to handle surprise medical bills or unforeseen car troubles. Saving a little money from your paycheck every week can bridge the gap when you need it most. It doesnt take a fortune to mitigate misfortune. Three to six months worth of living expenses should do the trick.
How To Dispute A Bankruptcy On Your Credit Report
Disputing a bankruptcy on your credit report is tricky, but its not impossible. Plus, its a very effective way to accelerate the credit repair process.
However, it may be difficult to accomplish if you try to do it on your own. To have a better chance at success, consider talking to a credit repair company to find out if you have a convincing case.
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Rebuilding Credit After Bankruptcy Step 5 Contact A Mortgage Professional Who Is Experienced At Helping People Who Were In Bankruptcy Filed A Proposal Or A Consumer Counselling Debt Program Get A Mortgage
Caution, if you plan on going to your local bank for a mortgage!
First, they probably dont know the rules on getting you a mortgage at the best rates possible.
Second, they are likely to turn your mortgage application down.
Worst yet, you may find yourself locked into a poor mortgage that will cost you thousands of dollars more than by using an experienced mortgage professional.
Mortgage professionals will get you a mortgage at the same interest rate, as the most creditworthy person who has never been in bankruptcy.
You will pay nothing for the services of a mortgage professional.
Once you have received your bankruptcy discharge after declaring bankruptcy, you can begin rebuilding your credit.
A popular way to start improving your credit worthiness following a bankruptcy is to use a secured credit card.
This is what makes your card secured.
Need Help Reviewing Your Financial Situation?Contact a Licensed Trustee for a Free Debt Relief Evaluation
Ask For Payments To Be Reported To The Consumer Credit Bureaus
If youre making on-time rent payments every month, why not let them boost your credit?
Ask your landlord to report your monthly payments to the three major consumer credit bureaus Equifax, Experian and TransUnion or let companies like RentTrack help take care of it for you.
But theres a caveat: Even if the information makes it onto your credit reports, not every credit scoring model actually uses that information. Certain credit-scoring models, like FICO® 9 and VantageScore® scores based on your Experian credit report, use available rental-payment information when calculating scores, and FICO® Score XD even uses reported cellphone and utility payments.
Unfortunately, you cant control which scoring model a lender uses to check your credit but you could ask about this before you apply for a new line of credit.
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How To Fix Your Credit After Bankruptcy
If you found yourself with so much debt that you were forced to file for bankruptcy protection, chances are youre wondering what comes next.
Well, the good thing is your debt should now be more manageable.
Depending upon the type of bankruptcy you filed, you probably now have a much better debt-to-income ratio as a result. This alone can make you a better risk to lenders, but lets not get ahead of ourselves.
A bankruptcy filing under Chapter 7 rules means assets are liquidated and dispersed to creditors. As a result, the debts are written off, although they will remain on your credit report for at least seven years.
If you filed for Chapter 13 protection, your debts are largely still in place, although they will be reduced to a manageable level.
As you know, you can only file for bankruptcy once in an eight-year period. This fact is what may make some creditors start courting you but resist the temptation.
This is your opportunity to get back on the right financial track.
To help you in this effort, here are things you should and shouldnt do as you get back on your feet.
Improving Credit After Bankruptcy Or Foreclosure
If you’ve filed for bankruptcy or recently gone through a foreclosure or short sale, it’s important to know what effect those events will have on your credit score and credit report. When can you get another mortgage, car loan, or credit card?
In the case of bankruptcy, the hit to your credit is somewhat dependent on how good your credit was before bankruptcy. If you had good credit, your score will take a bigger hit than if your credit was already in the dumps. As for foreclosure, when you can get new credit depends, in part, on the reason for losing your home. If it was due to the recent economic recession, and not poor financial decisions, you may be able to get a new mortgage or car loan sooner.
Below you can find out how each of these negative events will affect your credit, when you can qualify for new loans, and what steps you can take to start rebuilding your credit.
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Returning To Good Credit After Bankruptcy
A personal bankruptcy filing will affect your credit report for a certain amount of time depending on how you file:
- Chapter 13 bankruptcy stays on your credit report for 7 years after final discharge
- Chapter 7 bankruptcy stays on your credit report for 10 years after final discharge
Having a bankruptcy on your record for 7-10 years does not mean it will take you this long to repair your credit score or get out of debt.
Right away, the “final discharge” releases you from personal liability in most debts. You need this bankruptcy discharge before you can take steps to build toward better credit, otherwise, you will continue to have large debts.
Once the process starts, you can decide what choices to make to rebuild your credit.
Consider A Secured Credit Card
With a secured , you make a deposit to the lender in an amount equal or nearly equal to the maximum credit line on the card. If you stop making payments, the lender can keep the deposit to make up for what you didn’t pay.
On the surface, this can seem similar to using a debit card linked to a bank account. As with a debit card, a cash deposit backs up expenses charged to the card. However, there are some important differences.
On the negative side, you’ll pay extra fees for the privilege of using a secured credit card. Usually, the lender will charge an annual fee, perhaps an administrative fee for the setup of the account, and a high annual percentage rate. Those fees are usually charged directly to the account, and credit limits on secured cards are usually low . When you get your first statement, you could easily find that half of your credit availability has gone toward covering fees.
On the plus side, your payment history for the secured card will be reported to the credit reporting agencies. That means, unlike a debit card, using a secured credit card will help build credit. On your credit report, the secured card will look like any other credit account. If you pay according to the terms of the account, your credit score will rise. But keep in mind, if you fail to follow the card’s terms, your credit score will fall.
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Get A Copy Of Your Consolidated Credit Report
Get a copy of your consolidated credit report. It is the type of report that includes all the major three credit reports in one report. For example, I only use a consolidated credit report to check my credit, and the link will take you to the credit report I use.
Your credit report is like a report card of sorts. You need to look it over and make sure that all the accounts listed on your credit report are yours. If they were not, you need to write to the credit bureaus reporting them and tell them they are not your and ask to have them removed. Its like you looked at your school report card, and it listed classes you did not take. They should not be there.
If the rest of the accounts belonged to you, but you had a bad track record with them, that information stays on the report just as if you got a D in a class you took. Just because you got a bad grade does not mean the class is removed from a report card.
After seven years, the bad credit items will no longer be reported on your credit report. However, when you look at your consolidated credit report, if any of them list negative information longer than the seven-year period, then when you write to the credit bureaus to point out any incorrect information, you can tell them about the old items.
Generally, the credit bureaus are good about automatically removing the old items.
Can I Get A Mortgage After I File Bankruptcy
Yes! We represented a client who filed bankruptcy and two-years and two-days later, bought a brand new home for his family with a 3.25% interest rate. Yes, the bankruptcy was still on his credit report.
Two years and two days after filing bankruptcy, I ended up closing on a brand new home with 5% down and a 3.25% interest rate. We never thought that wed be able to buy a home this quickly, thank you for teaching us how to rebuild our lives after bankruptcy. Travis
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How Long Does It Take To Rebuild Your Credit After Chapter 7 Bankruptcy
A Chapter 7 bankruptcy stays on the borrowers credit report for 10 years. This means that after 10 years, all records of the bankruptcy must be removed from your credit report. That said, the impact the bankruptcy has on a credit score decreases as time passesdue in part to the immediate reduction in the consumers debt-to-income ratio, which is how much you owe in relation to the amount of available credit you have. Because of this, you may start to see improvements in as little as one to two years after discharge.
Apply For A Secured Credit Card
After a bankruptcy, it may be difficult to get approved for new loans or credit cards. But having open credit accounts helps you to rebuild your credit. So what do you do?
Secured credit cards are a great way to get started. You don’t need good credit to qualify for a secured credit card. Instead, you qualify by making a deposit that the creditor can keep if you stop making payments on the account. Here are a few key features to look for in a secured card:
- Reporting to credit bureaus: Make sure the card issuer will report your account information to all three major credit bureaus , giving you a better opportunity to build up all of your credit scores.
- Conversion option: Ideally your secured credit card will “convert” to unsecured after a set period of time. When it converts, you get your deposit back, as long as you’ve paid your balance. You can also keep using the card to help you continue building your credit history.
- Deposit amount: The larger the deposit on a secured card, the higher your credit limit. Having more credit availablethat you’re not usinghelps you improve your and build up your scores.
- Rates and fees: Fees and interest rates may be high compared with unsecured cards. Make sure you review the annual percentage rate , annual fee, maintenance fee and any other fees to choose the best secured card and keep your costs to a minimum.
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