Wednesday, June 26, 2013

8 Simple Tips For Rebuilding Your Credit After Bankruptcy

By John Wallace


If you have a recent bankruptcy, it's a pretty sure deal your credit scores have dropped quite a bit. Though time will gradually cancel out much of the damage, it's still critical that you begin working on cleaning up any remaining credit issues and reestablish a good payment history to get your credit rebuilt as quickly as possible. The following are a few simple steps that can help you rebuild your credit more quickly and make it easier to qualify for a mortgage in the future.

1) Make all your payments on time without fail. This is hopefully an obvious one, but it's still worth a mention because its so important. Banks will be looking for evidence that you've developed good payment habits since the bankruptcy. If you've missed even a single payment, it could make it impossible to qualify for a new mortgage even if your credit is otherwise in good shape. Make sure you send in all payments on time.

2) Get a secured credit card. Because of the bankruptcy, you may have few credit accounts with which to reestablish a good payment history. It's also likely that lenders won't be too interested in lending to you. One way to get around this problem is to obtain a secured credit card that is backed with your own cash on deposit. This is a great way to immediately rebuild your credit profile with a good payment history.

3) Check your credit regularly and clear up any issues right away. You're entitled by federal law to get a free credit report once every year from AnnualCreditReport.com, but it's always a good idea to check it more often. Make sure you're always grabbing data from all three major credit bureaus: Equifax, TransUnion, and Experian. If you find any errors, be sure to contact the bureau with the offending account and get it fixed as soon as you can.

4) Clear up any collections and charge offs. Even if all your debt was wiped out in the bankruptcy, it's not uncommon for derogatory accounts to hang around long afterwards in the form of collections and charge offs. Even if very little is owed, they can still damage your credit scores and make it tough to get a mortgage. You often can negotiate the balances for pennies on the dollar, but be sure to get any agreement in writing before sending in the payment.

5) Keep revolving accounts below 30% of the limit. If you have high credit utilization, the credit bureaus may consider you "maxed out" and hit your scores even if you never miss a payment. Always keep your balances below 30% of your limits at all times.

6) Check if your HELOC is reporting as a mortgage debt. If your home equity line of credit is reporting as a revolving account and you owe a lot on it, it could hurt your scores for the reason mentioned in the previous point.

7) Keep older credit card accounts. If you still have a few older accounts open, it's a good idea to keep them open to help strengthen your scores. The reporting agencies like to see long credit histories, so don't chop your scores by chopping old accounts.

8) Avoid cosigning. Trying to cosign is probably pointless if you have a recent bankruptcy, but down the road when your credit starts getting better, avoid cosigning. All your hard work rebuilding your credit could be gone in an instant if the person you cosigned for fails to make their payments. And because you're legally obligated on the debt, the lender could come after you for any balance owed.

One thing worth noting is that derogatory credit items such as charge offs and collections will stay on your credit for seven years even if they have a zero balance. But as time passes, the negative impact on your scores will decrease. Bankruptcies stay on your record for 10 years.

We also want to mention that it's super important that you live well within your means as you rebuild your credit. Yes, it's important to use debt to rebuild your scores, but be really conservative about doing it. Don't load up on a ton of new debt; borrow only when you have to and only borrow what you can easily afford and pay back in a short period of time.

These tips will help you rebuild your credit faster, but understand there's no quick fix. However, with some time and effort, you can rebuild after a bankruptcy and more easily qualify for a great mortgage.




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