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, AnnualCreditReport.com. 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. 

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

 By Charissa Potts, Attorney at Freedom Law, PC
www.FreedomLawPC.com

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.

Top 10 Tips to Better Credit

Top 10 Tips to Better Credit

By Charissa Potts, Attorney at Freedom Law, PC
www.FeedomLawPC.com

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.