Thursday, May 25, 2017

Repairing Credit After Bankruptcy: Part II

By Charissa Potts, Attorney

Getting your credit back in shape after a bankruptcy is like starting a new workout regime. You probably feel like you’re out of shape. It can feel daunting to get going again. You may feel a little sore at first.

But you’ve got to repair your credit after a bankruptcy. Think of yourself as Rocky, standing at the bottom of those famous stairs. The climb is hard. It takes effort. But the effort is worth it when you’re back at the top.

Think of me as your personal trainer, pushing you to succeed. I’m not going to let you slack! So get ready to work. Here are some ways you can rebuild your credit post Chapter 7 or Chapter 13.

1.       Take an honest look at yourself. That means examining your credit scores through the U.S. government’s free site, You’ll also need to study your FICO score in the months to come. If you see any errors, this is the time to correct them. It may take writing some letters, following up if needed and checking back to see the errors were fixed. Future lending and low interest rates depend on having a clean credit report, so take the time to fix what you can.

2.       Find a “workout buddy” at your local credit union. Credit unions are likely to take the time to work with you post-bankruptcy on setting up a secured loan. With a secured loan, you can borrow against the money you already have in the bank. (This money won’t be accessible for your use while you are paying off this loan, so be prepared.) The credit union will send reports about your positive payment history to the credit bureaus, and this will create a positive picture of you as a potential lender.

3.       Apply for a secured credit card. This is another credit-building tool that you can use post-bankruptcy easily and effectively. A secured credit card relies on money you have in your account; the credit limit is set to that amount you initially deposited. These cards may have an annual fee or higher interest rates. But this is a short-term fix to get your credit in shape. Check with your credit union or a local bank for these secured credit cards – they’re more likely to work with you to get your credit back in shape.

4.       Make a vow to pay off your bills on a regular basis. This is where you need to exert every ounce of discipline, just like following a workout schedule. Pay every bill on time. Keep your credit-card balances low. You need to show potential lenders that you have good credit and you’re a reasonable risk if they decide to lend you money. This may require a budget to ensure you’ve got enough every month to cover your bills.

5.       Protect your identity. Every boxer knows that you’ve got to shield your face and body from potential blows from an opponent. The same goes for your identity. You’ve got to redeem yourself in the eyes of financial institutions, so your identity is of the utmost importance. Don’t sign any loans for friends or family. Use cash when you can. Sign up for credit-watch services. And keep an eye out for strange activity on your various accounts. You want to shape your credit and identity just like you’d shape a muscle group.

Every day is another opportunity to work on your credit just as much as you’d work on your health and wellness. It takes effort, but the rewards are substantial. You need to rebuild your credit after a bankruptcy, and the responsibility rests on you and your post-bankruptcy behavior. 

Tuesday, April 25, 2017

Repairing Credit After Bankruptcy: Avoiding Common Pitfalls

By Charissa Potts, Attorney at Freedom Law, PC

Remember when you were a teenager, and your parents lectured you to avoid that friend who always seemed to get you in trouble?

The same lecture could apply to your financial life. There are things you might want to do as an adult that will put your credit in jeopardy. And it is up to you to know what to look for and what to avoid when it comes to spending, saving and lending money.

When it comes to your credit score, every point counts. Even small changes can have an impact on that all-important score, so you want to watch your financial moves carefully when you’ve had a bankruptcy. If you are trying to repair your credit and rebuild your assets, having a steady or rising credit score is essential.

You must protect your credit score after a bankruptcy. It is going to take a significant hit as a result of filing a Chapter 7 or Chapter 13. That’s the facts. But how you handle this impact in the months and years after your filing determine how quickly you can get back on your feet.

Here are some common threats to your credit and how you can avoid them:

·         Taking on a high-interest car loan. You likely need a vehicle to get to and from work and personal activities. Subprime lenders prey on people who have low credit scores or bad credit. You’ve seen those ads, promising loans for anyone and everyone? Well, don’t believe them. Taking a deal from a subprime lender will harm you financially for years to come. These car-loan interest rates can go as high as 30 percent. They’ll tack on plenty of extras, inflating the loan’s price even further. They’ll add warranties and service contracts you may not need, boosting their bottom line. You will be borrowing more than the car is worth, and that can leave you upside down. The lender benefits. You don’t. It’s better to buy a used car, wait until your credit is higher or use public transportation than take a subprime loan.
·         Failing to pay your student loan. The late fees may be painful. The calls and letters from angry creditors are horrible. But defaulting on a student loan is even worse. Your debt will be sent to a collector. The lender may sue you. You’ll have to pay interest, extra fees and any legal settlements on top of your current payment. Plus, you may lose your deferment or any repayment plans you had in place. Your credit score definitely will drop. If your credit score takes a hit, you’ll pay more for all kinds of loans, long beyond this one. Look for ways to work with your lender or find a loan-rehabilitation agreement. Maybe you can consolidate this loan with others for a lower rate. Do whatever you can to avoid default on student loans.
·         Co-signing on a loan for a friend or family member. This is risky business. As many as three out of four borrowers in this kind of loan defaults, and that means that you’ll be left paying on their debts. If someone needs a co-signer, there is a good chance they have poor credit. Now you’re in their same spot because the loan is due or you cannot make the extra payments. You’ll face extra fees, late charges, repo problems or worse. Your credit score will drop. You’ll have a major negative mark on your credit reports. And, chances are, you’ll ruin the relationship. Remember that old phrase, “Neither a borrower nor a lender be?” Live by that.

·         Considering a land contract. In this situation, you’ll work with the seller of a home or condo to set up a financing deal. You give the seller a down payment and the seller will act as a kind of bank for the two of you. You’ll finance the rest of the purchase price and likely pay interest for the deal. Here’s where the problems can start. If the contract has errors, they’re likely not to fall in your favor. The seller could fail to make payments if they still owe money on the home or land, and that will put your deal in hot water. There are so many ways that this deal could go wrong that it boggles the mind. In most cases, you’re better off waiting until you can buy a home again from a traditional lender just to avoid these headaches and financial heartaches. 

Wednesday, April 12, 2017

Credit Scores: Tips to Increase Your Score and Keep it High

 By Charissa Potts, Attorney at Freedom Law, PC

Other than your phone number and smartphone passcode, your credit score is the most important series of digits in your life. It affects your life on a daily basis – it can determine what you can buy, how much interest you’ll pay and whether financial-services companies want to work with you.

Think of it as your risk factor. Lenders look at how risky you are in terms of borrowing money. And the lower your score, the greater the risk.

In other words, credit scores determine what kind of house you can buy or rent, what kind of automobile you’ll ride in and whether you can enjoy life in the way you want to day to day. If you have a poor credit score, you’re going to have to pay much more for these life necessities – and that could add up to hundreds of dollars in lost savings. A good credit score really is that important.

Lenders – including banks, mortgage companies, credit-card issuers and car dealerships – all use credit scores for nearly every major purchase you’ll make. They study your score to determine whether you’ll get credit and the terms they’ll offer you, such as your interest rate or the size of the down payment they’ll require you to make.

Credit scores range from 300 to 850. Most people fall into the range of 600 to 750. But to lenders, a “good” credit score is anything from 700 and above; you’ll get better than average interest rates and the like. If your score is 800 or higher, you’ll fall into the “excellent” range and you’ll have the best options when it comes to borrowing money.

For example, if you applied for a FHA mortgage, you’ll have to make a 10 percent down payment if your credit score is under 580. However, people with a credit score of 580 or higher will require a down payment of only 3.5 percent. Grim but true.

Factors that affect your credit score vary depending on the lender. But some common ones include:

n  Your payment history. If you’ve been late on a regular basis, your credit score is going to feel the pain. This includes payment on your home, credit cards and others.
n  How much credit you use. If you’re making small monthly payments on a credit card with a huge credit limit, you’re going to be seen as more risky. Your credit score will drop as a result. Here’s a generic guideline: If your credit line is $1,000, you should charge no more than $300 monthly. That will keep your utilization rate at 30 percent or below, which is what most financial experts recommend.
n  How many credit accounts you have. Sure, opening a credit card at that department store seemed like a good idea at the time. But your credit score may have taken a hit because now you’ve got too many open accounts. Also, if all of your accounts are relatively new, your credit score may fall because of it. You want to have a few older accounts with a good payment history open at all times.
n  Public records. Your bankruptcy will stay on your record for a decade, and that will impact your credit score. This is another reason why you need to have everything else in perfect shape to offset this issue. Tax liens or civil judgments from court also lower your score.

What doesn’t affect your credit score? Your age, where you live or your race, color, religion, national origin, sex or marital status. U.S. law forbids financial institutions from using any of these facts when establishing their credit-scoring formulas. Any inquiries made by a potential employer also are not considered in determining your credit score.

Yes, companies can look at your credit score when deciding if you should get a job offer. Recently, human-resource departments have started to look at credit scores when determining whether to hire someone. Your credit activity says something about your responsibility levels, how seriously you take being an adult and what kind of worker you’re likely to be. This is a serious issue that needs to be addressed if you want to land the job of your dreams.

Bottom line: Your credit score is a key indicator of your financial health. Treat it with respect, and you’ll get respect.

Monday, April 3, 2017

Bankruptcy to Rebuild Credit

By Charissa Potts, Attorney at Freedom Law, PC

Taking a blow to your financial life – whether it is a medical emergency, outstanding debt that overwhelms you or another reason – may feel like the ceiling is collapsing on you. But bankruptcy may be the right tool for fixing your money problems and setting up a better life over the short term.

Bankruptcy once was something people shunned, thinking of it as a last resort or financial weakness. But with more middle-class bankruptcies, people have come to realize that financial issues don’t need to be hidden away. They can be resolved in a way that is honorable and proactive. Bankruptcy is a way to focus on the future and correct the mistakes of the past.

Everyone qualifies for bankruptcy protection, but your circumstances will determine which Chapter you qualify for.

Chapter 7: This common form of bankruptcy allows individuals to erase most of their debts. You can find relief from troubling bills through Chapter 7, which is available to many regardless of the amount of debt owed. You can be married or single, a homeowner or a renter. Chapter 7 is especially helpful for people who have medical debts, issues with personal loans or credit-card debt or loans with collateral that have a high interest rate. The process can take around 90-120 days, and it will wipe the slate clean quickly.

That said, Chapter 7 stays on your credit history the longest. For the next decade, borrowers will see that you’ve had a Chapter 7 bankruptcy on your record. This can affect the interest rates you’ll receive on loans and credit-card accounts. After bankruptcy you can quickly rebuild your credit if you are diligent within 1-2 years.

Chapter 13: Think of this form of bankruptcy as the ultimate repayment plan. This may be a better alternative for someone with a higher income because you’ll set up a restructuring plan to pay back your debts. It also works well for someone who suffered a temporary job loss and is ready to get back on his or her feet in a timely fashion. This sort of bankruptcy takes around three to five years to complete. Your assets are protected, and you don’t have to worry about having your wages garnished.

A Chapter 13 bankruptcy stays on your record for seven years. You will find you can get your financial life back fairly quickly, and that lots of creditors will be willing to lend you money. But be careful about what offers you select. Patience is key because the court will have some say over your financial life for the time you’re in Chapter 13. You can use a credit card, but make small purchases and pay them off quickly and completely. Once you have completed your Chapter 13 plan, you’ll be in strong financial shape to resume your life, whether it is purchasing a home or taking out a car loan with ease.

Other alternatives: You can try to negotiate with your lenders to see if they’ll work with you and come up with a payment plan that satisfies everyone. Be aware that if your lenders settle for less than the amount owed on a debt, you may be subject to pay income tax on the forgiven portion of the debt. For instance, if you owe a creditor $10,000 and the creditor agrees to take $2,000 to settle the debt, then the creditor is required to issue a 1099-C to you for $8,000 and that is taxable income. Also be aware that many so-called debt consolidation companies can you leave your credit score in far worse condition than when you started.

The best idea is to speak with an attorney that specializes in debt issues. I always give a free consultation and will give you all the alternatives and you can choose the one that works best for you.

Wednesday, March 22, 2017

Top 10 Tips to Better Credit

Top 10 Tips to Better Credit
By Charissa Potts, Attorney at Freedom Law, PC

You need to know how to work the system.

Right or wrong, your credit will determine your future. A strong credit score will allow you to live the lifestyle you want and build wealth and security. The good news is anyone can build or improve his or her credit! You don’t have to be rich or have a lot of education. You just need to know the rules. If you follow the rules, then you get a better score.

Here are my top 10 tips to better credit:

1.    Get a credit card. I know, this seems dangerous. But this is probably the most important first step. You may only be able to get a secured credit card, and that is ok. You want to make one small purchase on this card each month and pay it off in full. Your small purchase can be a tube of toothpaste or a trip to the gas station, but you must pay it off in full every month.  I recommend eventually getting at least 5 credit cards and doing the same thing on each card every month – one small purchase, pay off in full. Never carry a balance from one month to the next.

2.    Never miss a payment. When the mail comes in, it may be tempting to set a bill aside and tell yourself you’ll think about it later. But missing even a single payment can have an impact on your credit score. Set an alarm on your phone to make sure your bills are paid on time. Pay the entire balance, or pay as much as you are able.

3.    Open a bank account. Consider going to a credit union or a local bank to set up a new service. If you are concerned about overdraft fees, then open a bank account for savings but use a pre-paid debit for day-to-day purchases. This way you will have the benefit of a bank account and not run the risk of overdraft fees.

4.    Don’t close old credit card accounts. If you have a credit card that has been in your wallet for a decade or more, that’s actually great when it comes to building your credit history. Keep those cards open whenever possible.

5.    Dispute errors on credit report. Errors are common on credit-bureau reports. Names can be confused or you may have gotten dinged for a late payment that wasn’t the case. If you can fix these mistakes, it will raise your credit score.

6.     Check your credit report, and check it often.  This is easier and cheaper than ever, especially with apps available like Credit Karma, which everyone at my office uses (they do not pay me anything to say that!) Credit Karma is free, and you can check as often as you like to ensure there are no mistakes. I also love Credit Karma because my clients can keep track of their progress and watch their credit score increase over time!

7.   Create a budget. Pretty much everyone hates this word. But a budget doesn’t need to be complicated. Track where you’re spending for a month, and it will reveal much more about your habits than you may realize. Hammer down and keep what you’re spending from overflowing what’s coming in as income.

8.    Pay down your debts. This is easier said than done, of course. After your basic living expenses are paid every month, you should be able to put some money toward paying down your debts. Go one debt at a time, and pay it off completely. Then move on to the next debt. If your balances are not going down or if you don’t have any money left over after your expenses are paid, then you may need to look into other options to clearing up the debt.

9.     Avoid people who want to give you a “quick fix.” Some companies claim that they can repair your credit – for a fee. Other “debt consolidation” companies promise fixes that will take years and cost thousands of dollars. I often see people in my office that have tried many other things before coming to see me, and regret all the time and money wasted. There is no way for these firms to remove negative information from a credit report if it is correct. It takes time and good advice to fix issues.

10.  Consider bankruptcy. If you are unable to make progress on your debts, you should consider getting a fresh start. Bankruptcy is often the quickest way to repair credit. Once the slate is clean, you can actively rebuild right away. With diligence, your credit score can be in the mid-700s and higher within 18 months of filing. 

Thursday, March 16, 2017

5 Reasons Good Credit is Essential

My mother never talked to me about the birds and the bees. When I was sixteen, she instead sat me down for a serious conversation about building solid credit. My mom is a practical woman. At the time of our conversation, she was already widowed and trying to support three children on her meager secretary’s salary. Good credit was especially important to her because we didn’t have much money.

Good credit may seem like a lofty goal or something that is out of reach. But, in reality, good credit is the basis of a simple, drama-free life. Good credit creates a balance that lets you achieve everyday goals and become the relaxed person you want to be.

It was important to my mom that I start building credit as early and as quickly as possible because she believed that it was essential for my future. Why should you care about having good credit? Here are some reasons.

·         Good credit means you won’t have to pay as much for a loan. You know you shouldn’t overpay your taxes because it’s like giving Uncle Sam free access to your money. The same goes for why you don’t want to pay a bank or lender more than they need. If you have bad credit, the bank or lender is justified in charging you more to ensure you don’t default. But coming into those loans with good credit means you will qualify for larger loan amount with more reasonable interest rates. You will pay less over time, which means you’ll have more money for your family and your interests.
·         Good credit means you can live where you want and how you want. Lenders, such as those who offer mortgages, as well as landlords look at credit history. This is how they judge whether you are eligible to use their services or live in their properties. If you want to have the lifestyle you deserve, you need to have good credit across the board. If you aspire to provide for your family in a way that meets your personal standards, then you need to think about how you can protect and maintain your credit over the long term.
·         Good credit saves you money. This is obvious, but many don’t realize how much money good credit can save you. People with good credit pay less for loans on mortgages and vehicles, but also have lower interest rates on every other type of loan, including credit cards and student loans. Good credit will even save you money on auto insurance!
·         Good credit means you can take care of any emergency. To truly feel like you’ve got a handle on your life, you need to think about how you would respond if the roof sprung a leak or if you got into a significant car accident. If these kinds of emergencies would completely derail your progress as a person or your family’s comfort, then you need better credit. Having good credit means you could apply for a loan or tap into existing financial options, such as a line of credit, when unexpected events occur. There is no greater feeling than knowing you can rely on yourself or your own finances if the worst happens. Good credit is like the ultimate parachute, allowing you to land softly in any circumstance.
·         Good credit can improve job prospects. More and more often, employers are checking your credit history. It is often part of the hiring process along with background checks and drug testing. Right or wrong, bad credit can disqualify you from certain jobs.

The bottom line is good credit gives you options. When you have good credit, everyone wants to do business with you because you’ve proven that you are responsible and intend to pay it back. 

Charissa Potts,
Bankruptcy Attorney