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Credit Repair After Bankruptcy


If you've been through bankruptcy, you probably think your credit is ruined. The fact is, that your credit score will be down for a while, but there are things you can do to raise your credit rating to higher than it was before you filed bankruptcy. Regardless of your situation, your goal after filing bankruptcy should be to straighten things out and start establishing good credit.


Here's how:


1. Make a budget. Compare your monthly expenses against your income and set priorities for spending and saving. It's always better to control your money rather than letting it control you.


2. Learn to love cash. The best thing to do after bankruptcy is to try to pay cash for most everything. Get in the habit of saving for things by setting up a savings account and put a small part of each pay check in the savings account. A great way to get use to this is to use a debit card. This way your can track your spending on line and see where you are really spending your money. You also have the convenience of a credit card with out incurring debt.

3. Pay all your bills on time. Even the small ones. The phone company and the power company are two creditors that most people don't realize are creditors.


4. Watch your credit report. You've been through a bankruptcy to get a clean slate, and you need to make sure this is accurately reflected in your credit reports. About three months after you receive your bankruptcy discharge you should request your free credit report and check to make sure all your debts that were discharged in your bankruptcy show “Discharged in Bankruptcy”  and a zero balance on your report. The law doesn’t require creditors to report their debt as discharged to the credit bureaus. When you get your credit report you should complete the dispute form that came with it and dispute all the discharged debts that show on your report with a balance still owing or as late pay. Make sure and send a copy of your discharge order with the dispute form. Do this with all three credit bureaus.


5. Get a credit card. The best way to establish good credit is to get a credit card.  


Options include:


A secured card. This is a no-lose option for the credit card company, but personal finance experts are divided on whether these cards are helpful to consumers looking to re-establish credit. How it works: A bank holds your money and gives you a charge card with a limit for the same amount. When you close the account, you get your deposit back. Common-sense advice: If all you can get is a secured card, shop for one with the best rates and least fees. Get out a magnifying glass, and read all the fine print before you sign. Use it sparingly for six months to a year -- then try to renegotiate with the company for an unsecured card.


An unsecured card. Even after bankruptcy, you might still be able to get a card. Some banks or lenders may actually consider you a decent risk because you're not carrying any debt and may not be able to file a bankruptcy for years. But the interest rate will probably be pretty high. Act just like you would if you had tons of money: Shop around. Check Bankrate's website “search feature” to find the right card for you.


Be careful not to apply for too many cards. Each time you make an application for credit -- and a creditor checks you out -- it can potentially lower your credit score.


Card tricks: To establish a record of borrowing and repaying (the heart of the old credit system), you need to use your card. Our suggestion is to charge $40-$50 on the new card, make the minimum payment for four months, and then pay off the card. Keep a zero balance for a month or two and then do the same thing again. Maintaining a small balance and making payments on time, will help raise your credit score considerably. However, you must make your payments on time every month.


6. If you reaffirmed your vehicle or home make those payments on time every month. We suggest that you set up an automatic payment with the lender.


7. Put off buying a car, if possible. While you can probably find a lender or auto dealer willing to make the loan, you'll do better if you have a few years of credit-building practice behind you. The further away you are from your discharge date the better the interest rate will be. And when you do buy a car buy an inexpensive one.


8. Nurture those long-term relationships. Time heals, and if you have a steady income and a steady job, that shows up.


9. Don't forget the human touch. Having trouble getting a lender to take a chance on you after a bankruptcy? Try going to a local credit union, like Education Credit Union in Amarillo, and request a small loan. They may ask you to put money in an account to hold as collateral but if you make your payments on time this will be reported to the credit bureaus and raise your credit score. When the loan is paid off go back for a slightly larger loan. For example, if I needed a new water heater that cost $600 I would go to the credit union, ask for a loan of $600.00 and put the money I was going to use to buy the water heater in an account with them as collateral for the loan. I would make my payments on time for 9-10 months and then pay off the loan. My credit report would show I had opened an account after my bankruptcy, and that I paid on time for 9 months and now I had a zero balance. This little trick would raise my credit score about 100 points.

My credit report shows my mortgage was included in my bankruptcy, but I have been making my payments on time and am current - what do I do?


When you file bankruptcy you are required by law to list all of your creditors, even your home or car loans you want to keep. After the case is filed creditors may enter into a reaffirmation agreement with you, which is a new contract that clarifies your loan will survive bankruptcy. When this happens the creditor will report to the credit bureaus that the loan was involved in bankruptcy and that the debt was reaffirmed. However, reaffirmation agreements are voluntary and some lenders will not enter into them with bankruptcy debtors. This is especially true with Bank of America and other large national mortgage companies. They are too overwhelmed by all their foreclosures over the last few years to deal with reaffirmation agreements. In this case, your loan will show up on your credit report as if you included it in your bankruptcy and discharged the debt. The good thing about this is that if you later walk away from your home or car, they can’t pursue you to repay the debt. The bad thing is that your monthly payments will not be reported on your credit report. However, if you pay the loan every month on time and later want to refinance your home or purchase another one, you can provide the new lender with three years of canceled checks showing you paid your loan every month on time and the new lender will not hold the credit report against you. You will have the most success with a new loan if you apply with a local bank or credit union, such as Education Credit Union, Amarillo National Bank or Happy State Bank.

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