Rebuild your Credit after Bankruptcy
Although bankruptcy may be a final resort, the right bankruptcy services can be helpful in reducing debt burden, stop debt collector harassment and enable you to pay off debts gradually. The biggest problem is often how to repair damaged credit history after bankruptcy. Although you may think the best solution is to avoid credit, after bankruptcy you need to show both to yourself and to financial institutions, that you are now able to handle your money properly. The best way to do that is by responsibly managing credit. It will take time to rebuild damaged credit history, but is not impossible, especially if you receive good advice as offered by reputable attorneys experienced in bankruptcy.
You must be aware that it will take time to repair your credit history, so stay away from companies claiming to be able to fix your credit in a short period of time; it more than likely is a scam. Step number one is to stay employed, or find a job, if you do not already have one. Secondly, you need to review your credit report after bankruptcy. You are entitled to a free copy annually from any, or all, of the three credit bureaus – Equifax, Experian or TransUnion. Not only will this enable you to check that the details are correct but will give you a baseline to show to lenders that you are managing to rebuild your credit history after bankruptcy. Next calculate how much of your income you need to pay for essential (not luxury) expenses – rent, food, utility bills, medical costs etc. If you do not have a checking or savings account, open one immediately. Keeping this account in credit is the first step to repair your credit history.
After Bankruptcy Credit Cards
You may have had to surrender credit cards to the bankruptcy court, and obtaining conventional credit cards after bankruptcy may be difficult. In which case it is best to apply for a secured card, where you pay the lender the amount of the credit limit, up front. This type of card will never lead you into debt and you cannot overspend. Having the card at the same institution as your checking/savings account will help repair your credit better than having lots of different accounts. Also make sure that the lender reports to all three credit bureaus. Initially set a low limit on the card, but once you are comfortable staying within it, speak to the lender about raising it slightly at intervals.
After bankruptcy, most banks will be happy to let you progress onto an unsecured card after 12-24 months with a secured card, albeit with a low credit limit. You must be careful not to spend up to the limit each month (which adversely affects credit score) and MUST pay off the balance on time, every month. Make use of apps, which enable you to track expenditure and remind you of payment dates. Only use the card for luxuries, gifts etc – do not be tempted to buy essential items like groceries with credit.
After Bankruptcy Car Loans
Should you need to buy a car after bankruptcy, you can expect to be charged high interest rates. But making car loan repayments on time will help raise your credit rating, so that interest rates on subsequent loans will be lower. You might also be able to get a lower interest rate by making a down payment and accepting a short loan period.
You should be aware that car loans are secured loans, this means the vehicle you buy acts as collateral. If you default on payments the lender retains the right to take back the car in payment. These loans also often require a large down payment. But responsibly paying off a secured loan will help raise your credit score, so that you may be able to refinance the loan and benefit from a better interest rate and terms.
After Bankruptcy Mortgage
Obtaining a mortgage is often possible as soon as two years after bankruptcy, but you will need to be able to show that you have been able to raise your credit rating and possibly explain to a potential lender how you intend to avoid making the same mistakes again.
Federal Housing Administration (FHA) or Veterans Affairs (VA) mortgages are often suggested after bankruptcy. FHA mortgages require only a low down payment, offer fixed or variable interest rates and do not specify a minimum or maximum income. One advantage is that a co-applicant, even if not resident in the house, may enable you to qualify for the mortgage. But you will need to pay upfront and monthly payments for mortgage insurance. VA mortgages are only available to those involved in active military duty, veterans, reservists, or their family members. They offer very low or no, down payment, as well as variable mortgage terms. They do require payment of a one-off VA fee, but this can be incorporated into the loan.
It takes time and patience to establish credit after bankruptcy. Do not be tempted to waste money on debt consolidation companies, or those who make extravagant claims of being able to rebuild your credit history for you. The best help and advice comes from reputable bankruptcy attorneys.
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