How To Reestablish Your Credit
After declaring bankruptcy, you’ll want to look at ways you can earn a score in a range that will qualify you for better financing options and that begins with rebuilding your credit.
You may not be able to immediately qualify for the best credit cards, but there are others that apply to people with less-than-stellar credit.
Secured credit cards require a deposit that acts as your credit limit. If you make your credit card payments on time and in full on this new secured card,;you then have a greater chance at qualifying for an unsecured credit card in the near future.
The Capital One® Secured has no annual fee and minimum security deposits of $49, $99 or $200, based on your creditworthiness. Those who qualify for the low $49 or $99 deposits will receive a $200 credit limit. Cardholders can obtain a higher credit limit if they make their first five monthly payments on time.
The Citi® Secured Mastercard® is another option with no annual fee. There is a $200 security deposit required, which would mirror your credit limit. Cardholders can also take advantage of Citi’s special entertainment access, which provides early access to presales and premium seating for concerts and games.
Once you add this new credit car, make sure you pay your monthly bills on time and in full to quickly work your way toward better credit.
Where To Get Further Advice And Information
If you are looking for further advice on bankruptcy and how it may affect your credit score, make sure to read the Governments official bankruptcy section. There are also organisations called StepChange and The National Debtline that have useful online resources as well as Freephone numbers and online chat functions to get advice directly.
Bankruptcy & Your Credit Score
Unlike what you may have heard – filing bankruptcy does not ruin your credit forever! Itâs one of the biggest myths about bankruptcy.Â;
In reality, many people see their credit score go up almost immediately after filing bankruptcy. If you need debt relief but are worried about how a bankruptcy affects your credit rating, this article is for you. Letâs start at the very beginning…
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Rebuilding Credit After Chapter 7 Bankruptcy
Keeping your available credit high is a factor that drives up your credit score, along with maintaining a mix of credit types, such as a home loan, car loan, and credit card accounts. So when you begin using credit again, you’ll want to keep balances below 30%. Keep reading for other factors to consider.
How Long Does Negative Information Stay On Your Credit Report
The length of time negative information can remain on your credit report is governed by a federal law known as the Fair Credit Reporting Act . Most negative information must be taken off after seven years. Some, such as a bankruptcy, remains for up to 10 years. When it comes to the specifics of derogatory credit information, the law and time limits are more nuanced. Following are eight types of negative information and how you might be able to avoid any damage each might cause.
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How To Rebuild Credit After Bankruptcy
Building credit after bankruptcy takes time, but it can be done.
First, request a credit report and review it carefully to make sure that all the debts you discharged in bankruptcy have been properly reported on your credit report.
The law entitles you to one free copy of your credit report every twelve months from each of the major credit bureaus. You can access these free copies at AnnualCreditReport.com. You can get them all at once or one at a time.
To see how youre doing in each of the major factors that affect your credit score, look at your free credit report card on Credit Sesame.
If you want to see your credit reports more often, you can access one or all three on Credit Sesame for a fee.
Lenders are prohibited from trying to collect on discharged debt, including by incorrectly reporting your loans as past due or charged off in order to coerce you into paying.
Second, reestablish good credit habits as soon as possible.
Since most student loans wont be discharged in bankruptcy unless the bankruptcy judge determines you would face undue hardship if forced to repay them, make all student loan payments on time and ensure the payments are shown correctly on your credit report.
Consider opening one or more low-fee secured credit cards in order to establish a history of on-time payments .
You may be able to take out a car loan a year or two after filing for bankruptcy.
Finally, the most important key to rebuilding your credit is patience.
Derogatory Mark: Account Charge
If you dont or cannot pay your debt as agreed, your lender may eventually;charge the account off. The charge-off will appear on your credit reports for seven years.
What to do: Try to pay off the debt or negotiate a settlement. While this wont get the charge-off;removed from your credit reports, it’ll remove the risk;that youll be sued over the debt.
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How Can Bankruptcy Happen
You can be made bankrupt in two ways:
If you’re thinking of applying for bankruptcy, you should first speak to a free, independent debt adviser or a reputable solicitor, accountant, insolvency practitioner or financial adviser.
Will My Bankruptcy Affect My Spouse And Others
If youâre financially connected to someone, declaring bankruptcy could negatively impact how a lender views them. Examples of a financial connection include joint bank accounts or a shared mortgage. If youâre not connected to someone financially, their credit information shouldnât be affected â even if you live with them. Find out more about financial association here.
If your partner or spouse jointly owns property or possessions with you, this could be sold to help repay your debts. They’ll usually be given the chance to buy out your share or agree a value for the item. If the item is sold, the money will be split between your partner and creditors.
Think About The Long Term
When you need debt relief, it’s natural to focus mostly on what bankruptcy, debt settlement or any other alternative can do for you right now. But because each of these options can affect your credit score and financial situation, it’s crucial that you take the time to research every course of action and consider both the short- and long-term effects of each.
Before you go through with one of them, consider consulting with a credit counselor or bankruptcy attorney to get an objective, expert opinion. Credit counselors generally don’t charge for this service, and many bankruptcy attorneys offer free consultations as well.
Between your own research and expert advice, you’ll have a better chance of choosing the correct path forward.
Debt That Can’t Be Forgiven
While bankruptcy can eliminate a lot of debt, it can’t wipe the slate completely clean if you have certain types of unforgivable debt. Types of debt that bankruptcy can’t eliminate include:
- Most student loan debt .
- Court-ordered alimony.
- A federal tax lien for taxes owed to the U.S. government.
- Government fines or penalties.
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Bankruptcy And Your Credit Report
The type of bankruptcy you choose to file will determine how long it is listed on your consumer credit report. Chapter 7 and Chapter 11 bankruptcies stay on your credit report for 10 years after you file. Chapter 13 bankruptcies remain on a credit report for seven years after the bankruptcy is completed, but Chapter 13 proceedings can take up to three to five years to finish.
In many cases, it is not your damaged credit score that makes it hard to obtain credit. Some lenders do not grant credit to anyone with a bankruptcy, regardless of their FICO score. If you are having difficulty obtaining credit following a bankruptcy, it may be a good idea to open up a secured credit card, which is a credit card that you back with a cash deposit.
Building a personal relationship with a lender can be one of the fastest ways to secure credit after filing for bankruptcy.
Is Your Credit Rating Really Worth Stressing About
Are you current on all your debt payments? Yes? No? Maybe?Â;
If youâre behind on any debt payments, your credit score could probably be better. So, rather than worrying about possibly making your already bad credit worse, think about how a bankruptcy discharge could help you build credit.
So, what happens to my credit score if I file bankruptcy?Â;
Like all negative information reported to the credit credit bureaus, filing any type of bankruptcy will have a negative impact on your credit score. Since a bankruptcy filing is public record, they will find out, even if theyâre not directly notified by the bankruptcy court.Â;
But, unlike other things that have a negative effect on your FICO score, a bankruptcy filing is often the first step to building a good credit score.Â;
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Consider Applying For A Secured Credit Card
After filing for bankruptcy, its unlikely that you will qualify for a traditional credit card. However, you may qualify for a secured credit card. A secured credit card is a credit card that requires a security depositthis deposit establishes your credit limit.
As you repay your balance, the credit card issuer usually reports your payments to the three credit bureaus. Repaying your balance on time can help you build credit. Once you cancel the card, a credit card provider typically issues you a refund for your deposit.
When shopping for secured credit cards, compare annual fees, minimum deposit amounts and interest rates to secure the best deal.
Is My Credit Going To Be Bad As Long As A Bankruptcy Shows Up
Myth: You might as well not even try because youll have poor or bad credit as long as the bankruptcy is on your record.
The truth: Yes, bankruptcy tanks your credit score in the short term. But how much a bankruptcy impacts your credit score depends in part on how old the record is. Like many other types of items reported on your credit file, bankruptcies lose some power over time. Thats especially true if you start managing credit and debt in a more positive way while youre waiting for the bankruptcy to fall off your report.
Some ways to help positively impact your score after bankruptcy can include:
- Adding new credit, such as secured credit cards or small installment loans, to offset the negative information on your credit report.
- Making on-time payments for all debt, new and old.
- Keeping your credit card balances under 30% utilization.
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What Are Other Ways To Improve Your Credit Score
You can build healthy credit over time by starting with these steps:
- Make on-time payments. This is one of the most important factors that impacts your credit scores. If you think you cant afford a payment, reach out to the lender right away. It may be willing to work out a payment plan and keep your account in good standing.
- Check your credit reports. This will help you understand and track your overall financial health. Also look for errors, such as incorrect credit card balances, trade lines that arent yours and accounts that are incorrectly marked as delinquent.
- Dispute and fix errors. About 20 percent of consumers have an error on at least one credit report, according to a Federal Trade Commission study. Getting an error removed may help your credit score improve.
- Consider a debt consolidation loan. A debt consolidation loan unites all your debts into a single balance, often at a lower interest rate that can save you money. A debt consolidation calculator can help you evaluate whether this type of loan is right for you, as debt consolidation can temporarily hurt your credit.
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How Does Bankruptcy Affect Your Credit Score
A is a number calculated by a credit bureau or credit reporting agency. It represents how trustworthy your reputation is as a borrower, and is a factor lenders may use to decide whether or not you are eligible for a credit product, plus what interest rate to charge you.
Have you checked your credit score lately?
Image credit: Michael D Brown .
You can check your credit score for free
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How Does Bankruptcy Affect Your Credit Top 7 Questions Answered
Filing for personal bankruptcy is a major decision with implications for everything from where you can live, your ability to get a job, and even your personal relationships. But it also gives you the ability to resolve your debts by discharging them completely or following a court-ordered payment plan.
In this guide well answer the top 7 questions weve been asked about bankruptcy.
What Only Chapter 13 Bankruptcy Can Do
Chapter 7 and 13 each offer unique solutions to debt problems. The two bankruptcy types work very differently. For instance, how quickly your debt will get wiped out will depend on the chapter you file:
- Chapter 7 bankruptcy. This chapter takes an average of three to four months to complete. Learn more about erasing your debt in Chapter 7 bankruptcy.
- Chapter 13 bankruptcy. If you file for Chapter 13 rather than Chapter 7, you’ll likely have to pay back some portion of your unsecured debts through a three- to five-year repayment plan. However, any unsecured debt balance that remains after completing your repayment plan will be discharged. Find out how to pay off or discharge your debts in Chapter 13 bankruptcy.
Chapter 7 is primarily for low-income filers, and therefore, it won’t help you keep property if you’re behind on payments. But, if you have enough income to pay at least something to creditors, then you’ll be able to take advantage of the additional benefits offered by Chapter 13.
Here are some of the things that Chapter 13 can do.
Stop a mortgage foreclosure. Filing for Chapter 13 bankruptcy will stop a foreclosure and force the lender to accept a plan that will allow you to make up the missed payments over time. To make this plan work, you must demonstrate that you have enough income to pay back payments and remain current on future payments. Learn more about your home and mortgage in Chapter 13 bankruptcy.
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Does Bankruptcy Hurt Your Credit Score
Bankruptcy appears on your credit report as a derogatory remark, and all else being equal has a strong negative effect on your credit score.
In other words, a person with a perfect credit score who suddenly files for bankruptcy will see his credit score immediately crash.
In reality, by the time most people file for bankruptcy they have already fallen behind on their payments, gone into default or foreclosure, or had legal judgments entered against them.
Those negative marks will have already ruined their credit score, and bankruptcy may or may not reduce it any further.
According to Credit Sesames data, users with a bankruptcy on their credit report actually have slightly higher credit scores, on average, than users with negative marks like tax liens or legal judgments against them.
Thats partly because consumers with bankruptcies on their credit report are scored differently than users without bankruptcies; a bankrupt consumer with a sterling record of on-time payments may have a higher credit score than a person on the verge of bankruptcy who has dozens of missed payments, charge-offs, collections, and liens.
Can Bankruptcy Affect Your Ability To Get A Loan
While a poor credit score can reduce your chances of being approved for a loan or other credit product, bankruptcy may prevent you from even being able to obtain one. Many lenders have a policy to decline loan applications made by people who are bankrupt. Even after bankruptcy no longer appears on your credit report, a prospective lender might check the National Personal Insolvency Index , discover you are a discharged bankrupt and choose to decline your loan.
A lender could see bankruptcy recorded on your credit report and immediately deem you ineligible for a loan or line of credit youve applied for, regardless of your overall credit score and history.;
In certain circumstances, it is a criminal offence for people who are bankrupt or subject to a debt agreement to obtain, or seek to obtain, credit. If you do want to go ahead and apply for a loan, it is important to do your research, and consider seeking financial and legal advice if you need help. Your options will most likely be quite limited, and only include smaller-scale forms of lending, such as personal loans, depending on the lender in question and the size of the loan youre applying for. You might be more vulnerable to loans charged at a higher rate of interest, with more terms and conditions attached, or from lenders who are less credible.
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