Credit Score After Bankruptcy

Contrary to what you might believe, your credit score after bankruptcy will improve rather quickly. Your formerly reported records of late payments on multiple debts are now gone from your report. If you quickly reestablish some recordable credit references, you will see your score increase in 90-120 days. This, of course, will help you obtain more credit if you need it. Be very diligent to make all payments on new credit as agreed.

An After Bankruptcy Credit Card

You may apply for an after bankruptcy credit card as soon as you receive your discharge from the bankruptcy court. These cards are either totally or partially “secured” by your own funds. You will make a deposit with the card issuer for an agreed-upon amount, usually around $300-400, after which you will receive a major credit card, VISA or MasterCard, with a credit limit equal to or slightly higher than your deposit amount. If you make all required payments on time for 6-12 months, your credit limit will normally be increased, giving you more unsecured credit. While the interest rate is quite high and some of your funds are more or less “frozen”, this is a perfect way to quickly reestablish your credit after bankruptcy.

Establishing Bank Accounts After Bankruptcy

Establishing bank accounts after bankruptcy is a relatively easy task. Opening a savings account will not require the bank or credit union to obtain a credit report since you are not making a request for borrowed funds. Should you wish to open a checking or other transaction account, many financial institutions will obtain a report from one of the agencies that maintain databases of “negative information” regarding NSF checks or other problems that people have encountered managing checking accounts. Non-payment of fees, third-party NSF checks consistently included in deposits or other recorded problems one has had managing such an account. While bankruptcy information should not normally appear in the data base, if there were circumstances that may have caused problems with your previous checking account, you may need to explain the situation before you’ll be allowed to open the account.

Renting After Bankruptcy

There is no hard and fast rule stating a waiting period from discharge and renting after bankruptcy. However, it would be in your best interests to have some reestablished credit so the property owner or real estate management company can see that you have begun being responsible for your financial situation. A credit report will normally be obtained before your application to rent is approved. A discharge in bankruptcy will not automatically prohibit your approval, but the owner still needs some confidence that you will make scheduled rent payments as agreed. The costs of eviction provide no income to a landlord and generate issues they do not wish to deal with.

Getting A Mortgage After Bankruptcy

You will be able to obtain a mortgage after bankruptcy but you will have to wait a while. The usual time period for a reasonably priced mortgage is two years from discharge. Occasionally, an aggressive lender may offer a product that allows for a shorter time period from discharge, although the terms will probably not be among the best. Also, in times of rising interest rates or “tight money” periods, there will be no such choices. Another option, if you can find it, is seller financing. The seller of a home, in order to facilitate its sale or who does not have a better source of investment for the sale proceeds, may be agreeable to financing the property him/herself. They will receive earnings (through the interest rate) while still having excellent security (their former property.)

Buying A Home After Bankruptcy

The possibilities of buying a home after bankruptcy are wonderful, but you will have to wait a bit before making it happen. Most lenders will look favorably on your request for mortgage financing if -

• Around two years have passed since your discharge.
• You have reestablished credit and all payments have been made as agreed.
• You have a proven source of regular income.
• You have the ability to generate some funds for a down payment from savings, gift or another source that does not impede your debt to income ratio.

Once you can meet the above conditions, you should be able to purchase a home.

Available Loans After Bankruptcy

There are some sources of loans after bankruptcy although your choices will be rather limited. Right after you receive your discharge, you can procure one or more secured credit cards from a number of card issuers. After you deposit an agreed-upon sum, usually $300-400, you will receive a major credit card, VISA or MasterCard, with a credit limit equal to or slightly higher than your deposit. As you make your scheduled payments in the coming months, your credit limit will normally be increased at regular intervals.

You should also be eligible for an auto loan since it will be secured by the vehicle. Many auto dealers will "self-finance" their own vehicles for you, even right after your discharge. Since these autos are their own inventory, they can afford to finance the purchase and generate continuing income from interest earned. If you have a bank account, you can also obtain a savings secured loan by pledging all or part of your balance. This is a very inexpensive loan (interest rate usually only about 2% above your savings rate) and, while technically not providing you with new cash, it will quickly help you reestablish your credit after bankruptcy.

Getting a Car Loan After Bankruptcy

Obtaining a car loan after bankruptcy should not pose a major problem. Since you have been discharged, you are not allowed to file another petition until eight years have passed. Many auto lenders may find you to be a wonderful credit risk since the term of an auto loan will normally be less than the prohibition period. Also, many auto dealers will “self-finance” their own vehicles since their cost basis is less than the price you will pay to purchase the auto. Therefore, the auto dealer’s risk is much less than that of a bank or finance company. A recent bankruptcy should not prevent you from buying an auto.

How To Build Credit After Bankruptcy

How do you build back your credit after you file bankruptcy? The short answer: Any way you can. The easiest methods:

• Procure one or two secured credit cards requiring a deposit equal to the credit limit issued (usually $300-400). Charge some small stuff and make minimum payments on time.
• Take $400-500 and get a savings account loan from a bank or credit union. Make all required payments on time.
• Get an auto loan, possibly directly from a dealer who wants to sell cars, and ensure that the lender reports to the credit bureaus. Make all payments on time.

"Credit LIfe" After Bankruptcy

There is a life after bankruptcy . If you plan your strategy, you can have a strong credit life after discharge of your prior debts. After bankruptcy, you are given a “fresh start” to your financial life. You should establish credit after bankruptcy as soon as possible any way you can. Getting a secured credit card, an auto loan or a “passbook/savings account loan” from a bank or credit union will begin to build a new positive credit report for you.