You are very concerned about your credit score, as you should be. Nearly everything — jobs, insurance, purchase of home and cars and even apartment rental — is based on your credit.
The good news is that you can and will have excellent credit again. In fact, even before the bankruptcy mark falls off your credit report, you could and should have a 750 credit score. This will take hard work. And you will have to begin immediately after your bankruptcy is over.
Most of the time, you will have to wait until you receive the official notice from the bankruptcy court. This notification will say some variation of “Discharge of Debtor.” That is the document that future creditors will want to see prior to offering you new lines of credit.
You will want to know whether you have a chance for the loan before you even fill out an application in order to avoid unnecessary credit inquiries from showing up on your credit report.
Here’s how to raise your credit score as quickly as possible after declaring bankruptcy:
That’s the most important step in your bankruptcy recovery. The easiest way to start re-establishing credit is with a secured credit card from a local credit union or bank. A secured card means that you give the bank some money to hold and the bank gives you a credit limit equaling that amount. For example, you give the bank $500 and you get a credit limit of $500 on a credit card. A secured card is like a pre-paid credit card. Typically, after a year to 18 months of on-time payments, you could “graduate” to a regular, unsecured credit card.
Ask whether the bank will report the card to all three major credit bureaus — Experian, Equifax and TransUnion. If not, you’ll need to find another bank that does report activity to all three bureaus.
Watch for outrageous upfront fees. Some clients have told me that the bank charged $200 in fees to open the secured card. That means $200 of your $500 limit is used up before making your first purchase.
Also, ask the bank how soon you can you increase the limit on the card. The higher the limit and the lower the balance, the faster your credit score will improve.
Finally, you want to work with a bank or credit union that will eventually give you an unsecured credit card. Some institutions will want to see at least 12 to 24 months of good payment history before offering you an unsecured card. You should know this information prior to opening the account.
Please note, anyone who says you improve your credit score by carrying a balance is wrong!
Make sure all the accounts you included in your bankruptcy are listed as such, and show $0 balances if you filed Chapter 7. If a creditor continues to report the account as delinquent — which they shouldn’t — your credit score would suffer.
If you have a trusted friend or relative, ask them to make you an authorized user on one of their credit cards. Your bankruptcy won’t affect your friend’s credit, but you’ll automatically get the account history for that card in your report.
To make this more effective, use an aged account. Imagine if your trusted person has a 10 year old credit card account with a perfect payment history and a balance of only 50% of the credit limit. Wouldn’t you love to have this on your credit report? The easy part is your trusted person just calls the credit card company and requests a form to add a cardholder. Once completed and activated, their entire account history and future is now firmly planted on your account. Imagine if you secured 3-5 of these accounts – especially installment accounts. Your credit score could sky-rocket!
The challenging part? Finding the trusted person. Since you already have a low credit score and bad credit, how eager will someone be to make you a cardholder? Even your parents don’t want you to damage their credit. But, no one says you need to possess the card! In other words, your trusted person could add you as a card holder and never give you the card or PIN or any information. Since the bills and all account information is still mailed to the trusted person’s address, you won’t know anything about the account. This scenario could land you many trusted persons. And you still benefit with a higher credit score.
You can start shopping for auto loans as soon as a few months out of bankruptcy. Traditional banks are likely to turn you down, but the financing folks at the dealership may be more lenient, especially if they’re in a bind to meet sales quotas.
Disclaimer: Law Offices of Lady Justice is a Professional Law Corporation that represents clients all over Southern California. The information contained on this website is not to be construed as legal advice. It is not intended to solicit or form an attorney-client relationship. We do not guarantee any result and prior results do not guarantee a similar outcome. This is an attorney advertisement and this website is for informational purposes only.