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. 

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.