Anyone who has faced bankruptcy proceedings knows how frightening the experience can be. After it’s all over, you’ll need to rebuild your credit, but how can you do this, and where will you start?
Studies by the Fair Isaac Corporation, better known as FICO, show that filing for bankruptcy can lower your credit score by as many as 240 points. Raising that figure won’t be easy, but it won’t be impossible either. With a little foresight, anyone can do it. Here are some things to keep in mind.
Borrowing Money Will Cost You More
When seeking a loan after bankruptcy, you face higher interest charges and greater default penalties. That’s because lenders now regard you as a subprime borrower and therefore a greater risk. To lower those unattractive rates and potential charges, you must make a concerted effort to re-establish your credit.
Bankruptcy and Your Debt-to-Income Ratio
If you have filed Chapter 7 liquidation bankruptcy, the law prohibits you from filing again until eight years have passed. In the eyes of a prospective lender, this fact alone can make you a better risk. That’s because your Chapter 7 filing has reduced your debt-to-income ratio by a remarkable and possibly spectacular degree.
While a filer of Chapter 13 will enjoy a similar benefit, it won’t occur as quickly. However, the onerous budgetary restrictions under which such debtors normally live leads many to a talent for efficient money management that lets them finance themselves out of Chapter 13 status within as few as 18 to 24 months. For those with equity in their homes, the process becomes even easier.
Don’t Try to Borrow Too Fast
While it may seem tempting, any effort to borrow money in a hurry can land the post-bankruptcy filer in an even deeper hole. Experts recommend instead that at this time, you stick to making regular and timely payments each month. This seemingly boring process is the best way of re-establishing your credit. Once your score has risen to 650 or higher, any proffered interest rates will be far more appealing.
Build a Reserve for Emergencies
Although it may seem counterintuitive, filing for bankruptcy actually positions you well for building your bank account. By removing numerous debts from consideration, the filing leaves you with that much more money to salt away.
Experts recommend putting 10 percent of your income into savings on a regular basis, but if you can’t manage that much, set aside as much as you can. Loose change can add up in a hurry.
Get a Credit Card
A bankruptcy proceeding can result in the cancellation of your credit cards. If this happens, your regular bank or debit cards may serve as useful stand-ins.
It can also help to get your hands on a secured credit card. To do this, you need only go to a bank, apply for a secured account and make an immediate deposit. The bank will provide you with a card and a credit line of between 50 and 100 percent of what you’ve deposited. These secured cards are easier to get because the bank already has your money up front. In most cases, it will also pay interest on that amount.
Try for a Credit Loan
In some cases, banks or credit unions will lend you money over and above the amount you deposit into an account. However, that money will only become available when your account balance exceeds the loan amount. If you then make regular and timely payments over a period of six months to two years, you might become eligible for an unsecured loan or credit card.
Don’t Get Taken In
People in financial difficulties and those with impaired credit ratings are often prime targets for questionable lenders. Those who fall victim to their ploys can find themselves socked with fees so outrageous that getting out from under becomes impossible. Predatory lenders routinely charge borrowers drastically inflated rates, and people who take out payday loans must frequently cope with interest costs as high as 400 percent. Don’t let feelings of desperation lead you into worse fiscal straits.
Avoid Credit Repair Agencies
Although some outfits convincingly maintain that they will fix your credit rating or remove that bankruptcy from your records, these claims are often bogus. It would be best to avoid these organizations and straighten things out on your own.
Watch Your Credit Score
If you have gone through bankruptcy proceedings, you must monitor your credit rating carefully. Take a close look at reports from Experian, Equifax and TransUnion in search of inaccurate, erroneous or missing information. It is imperative that these reports correctly represent your current living address, employer and personal contacts.
Getting Your Life Back
Your Chapter 7 or Chapter 13 bankruptcy filing has given you the chance to make a fresh financial start. Be sure to go about it the right way. The Law Office of Michael West specializes in bankruptcy and subsequent credit repair. Whether you are thinking of filing or have already completed the process, give us a call at 404-913-1529 and let us demonstrate to you how we can help.