Category: Credit Tips

10 Steps To Rebuilding Your Credit After A Chapter 7 Bankruptcy

Life after a Chapter 7 bankruptcy is not as daunting as many would have you think. In fact, most of the negative information out there is spewed by the credit card companies that lose out when you file for bankruptcy protection.

The truth is, life after bankruptcy (BK) can be a rewarding experience. Think about it, you have been given a fresh start – free from debt – to start over. The most important thing to remember is ‘ Don’t screw it up!’ Have a strategy in place and commit to to it. It will take time but it’s not impossible.

In fact, there are several lenders that specialize in post-bankruptcy lending, the interest rates, fees, and terms may not be the greatest, but considering you won’t be able to file for bankruptcy again for another 8 years, you’re worth the risk in their eyes. Now it is true that a bankruptcy can stay on your credit for 10 years. However, your credit re-building process should begin immediately after discharge. For example, it typically takes 90 days to be discharged from a Chapter 7 BK, you can and should start rebuilding on day 91.

Here are the 10 Steps To Rebuild Your Credit After Bankruptcy!

First, take a moment and reflect on how you got here in the first place – namely why you had to file bankruptcy. Could you have saved more? Spent less? Planned for emergencies better? What did you learn? Self reflection is key so that you do not end up here again. I do know ‘things happen’ such as illnesses, job loss, etc but often times I meet with clients who just really over extended themselves and lived above their means. Even if it was a tragic event that led to the bankruptcy; taking a moment to learn from this experience is very significant. In my personal situation, I knew that I needed to invest in better health insurance, have a larger emergency fund, and rely on cash a heck of a lot more than credit.

Second, create a budget. This is so important! Now, more than ever, you need to get serious about having and sticking to a budget. This is your personal spending plan that tells your money where to go and how to work for you each and every pay period. This means making an effort to live below your means, not at your means. It is also good at preventing frivolous spending and determining ways to keep more money in your pockets/ bank account. If you have pinpointed your ‘learning lesson’ from step one it should be implemented here, in step two. Thus, your budget should include money set aside for your Emergency Fund/Savings Account that is funded prior to paying any other bills. This is the ‘Paying Yourself First’ practice. Being dedicated to paying yourself first and having a fully funded Emergency Fund for emergencies only will ensure that when ‘life happens’ you’ll be better prepared financially. How much should you set aside? Well, how much can you afford? I typically suggest starting with 10% of your monthly net income or $200, whichever is more feasible, and increasing it from there.

Third, Pay ALL of your current bills on time. I cannot stress this enough. The worst thing you can do is to file bankruptcy and have a past due utility bill or cell phone collection pop up on your credit report months or even a year afterwards! Haven’t you learned your lesson? This is what future creditors and your credit score will say when your report is further damaged by the reporting of negative information; in fact your score will be penalized twice as bad by the credit reporting scoring system.

If you have done a good job with number two – creating a budget- you should have no problem paying your bills on time – if not early. Probably the easiest way to pay anything on time is to set up automatic payments around your pay day. You set it once, and monitor it from there.

Now it’s time to build!

The Fourth step is to check your credit report. You want to ensure your bankruptcy is reporting accurately – courthouse information, amount, the type of bankruptcy filed, etc. And if you find an error, legally you can dispute for a deletion.

You also want to check the other accounts that were discharged in your bankruptcy. They should state they were discharged in Ch7 bankruptcy, the amount should be $0 owed/due and the all collection activities should stop, which includes any updates on your report about the debt. If you see any errors, dispute for deletion.

Fifth; re-enter the world of credit. Namely, apply for a credit card. You may be a little apprehensive, but if you plan on purchasing a home, opening a business, and rebuilding a positive credit profile, this is a MUST! How the credit scoring model works, any positive information that you have posting on your credit report will outweigh the negative information reported in the past. Therefore you have to put some positive information on there to boost your scores and strengthen your credit profile.

Where should you begin? Well, they may start to solicit you first. Review all offers carefully, interest rate, repayment terms, fees – all fees because with one particular card (First Premier) there are several so you want to be prepared. Don’t accept just anything! If you have not gotten any offers try your personal bank or your local credit union. If all else fails seek out popular, secured sub-prime credit card providers: Credit One, Capital One to name a couple. You can try obtaining an unsecured credit card but immediately following a bankruptcy I doubt if you’ll be approved. Further, the inquiry and rejection will further damage your report. Make sure you select a secured card that reports to All 3 Credit Bureaus – after all, you are rebuilding right? Reporting to only one or no bureaus at all is not going to help you in any way. You want all of that new positive credit information reporting into your score. If are rejected for a secured credit card, then you can look up ‘No Credit Check’ secured cards that report to all 3 credit bureaus online; First Progress and Opensky are popular ones.

Sixth, use your card wisely. Spend less than 10% of your credit limit, 30% maximum. That means if you have a $300 credit limit, do not spend more than $90; for $500 do not spend more than $150; $1000 credit limit do not spend more than $300; get the picture? Low balances, good payment history, more available credit than utilized (spent) credit is key. I don’t advise keeping a balance because of the high interest rates, but I have seen that some companies – Capital One in particular – will give you an increase faster by keeping a balance for 2-3 months. If you do this, please pay on time, keep it under 30% of the credit limit, pay it off no later than 3 months and include it in your monthly budget.

And, don’t create an additional bill for yourself. What do I mean by this? The easiest way to factor credit cards into your monthly budget is to set up automatic payments for a utility, cell phone or some other monthly bill that’s already in your written monthly budget; charge it and just pay it off right away the following month. This way you are not creating an additional bill and the expense is already included in your budget, you’ve just changed your method of payment from auto-debited withdrawals from your bank account to automatic credit card payments.

Seventh, increase that limit. Most people start off with a $300-500 credit limit, which doesn’t do too much for building your score, so you want to get it to $1000+ as soon as possible. If purchasing a home is on your short term list you want it over $2000. Why is this important? The lower the credit card limit the less it will count towards increasing your score. If you’re with a good secured credit card company, this means increasing the amount of your security deposit. If you’re with a less than stellar secured credit card company that still reports to all 3 credit bureaus but doesn’t offer incentives such as switching to an unsecured credit product in 6-12 months; then you may want to use the less than stellar secured card for 6 months, and then re-apply for another card with a more reputable company. By then you may be eligible for one of Capital One’s or Credit One’s unsecured products.

Eighth, get more than one card. Two to three should suffice. Using the above example, let’s say you got a $500 secured card, paid it well for 6 months and applied for an unsecured card and was approved for $500. DO NOT CANCEL THE SECURED CARD. Increase the deposit to $1000, if you can, but do not increase your spending. The increase of available credit will eventually factor into your credit score and give you a nice little boost. After all, 30% of your credit is based on your debt utilization and 35% is based on your payment history. By increasing your credit limit, adding on additional credit card that you will use just as wisely, keeping your balances super low, and paying on time; you are well on your way to good credit again! With six more months of positive payments on both of your cards you can ask for a credit limit increase with the unsecured credit card and apply for one more at that time as well. You’re 12 months in at this point and should have substantially better credit than when you started this journey.

To experience an even bigger jump, see if you can have a close friend/family member add you on as an authorized user to their credit card account. This account should have stellar payment history and super low balances and be 3 years or older in age. By becoming an authorized user, all of that good payment history will be placed on your credit report boosting your score even more!

Ninth, mix up that credit. This basically means adding an installment loan. This is usually feasible at month 6, 9, 12 and/or 18 depending on your situation. This is easier to obtain when you are an active member of a credit union; if you’re not, another option would be through a company such as Avant, Prosper, or Lending Tree. People with federal student loans that they are paying on a regular monthly basis won’t have to do this right away, but those that only have the credit cards they’ve recently acquired on their credit report will. This can be in the form of a personal loan/line of credit or a car loan. Your interest rate will be less than stellar but make sure the loan is affordable and can be paid off relatively easy. Namely, don’t put a strain on your budget. When I got my first personal loan I didn’t even spend it. I put it in my checking account with my credit union (who I got the loan through) with a few hundred dollars extra for interest and set up auto-payments for 6 months. I did this 3 times; paying the loan off in 6-12 months, until I saw a nice little jump in my score. I never did get a car note after my BK because living below my means with as little debt as possible was my ‘lesson learned’ from the whole experience. If you need a car after a BK, Edmunds.com has some phenomenal tips on purchasing a vehicle after a bankruptcy.

The Tenth and final step is to monitor your progress and pinpoint areas of improvement. I personally signed up with a credit monitoring service that monitors all 3 bureaus, however, signing up with a free service, such as CreditKarma.com is fine. It only monitors Transunion and the credit score is far from accurate but the data is usually okay – not great, but okay. Your main objective is to see how you’re doing; is your score moving up or down? Is your credit utilization rate okay? Could you do more to boost your score and strengthen your overall credit profile?

Monitor your budget on a bi-weekly or monthly basis. Could you be saving more? Are there ways to cut some more spending from your budget? Do you need to find a way to bring in more income to cover your necessities (food, shelter, transportation, etc)? Make changes/improvements based on your assessment.

Following these 10 steps consistently should put you well on your way to an excellent credit score!


Six Ways to Improve Your Credit Score

Making sure your credit is in the best shape possible before applying for a mortgage is crucial. You should know everything on your credit report and be able to answer questions about old and new accounts. No lender wants to hear the words, “I don’t know,” if they ask what a charge-off was. Besides, if you get familiar with your credit report early enough you will have time to address anything that’s bringing your score down. You may not think having one small mistake removed will make a difference, but it will.

1. Focus on Recent Negative Entries – If you have blemishes on your credit that you are going to address always work on the most recent ones first. Older credit problems don’t hold as much weight as newer ones.

2. Don’t Open New Credit Cards – Just because you can get approved for many credit cards does not mean you should apply or them. Some think that opening a number of cards will make them look more attractive to lenders because they have more available credit. Unfortunately, having a lot of “new” credit could actually work against you and reduce your credit score.

3. Hold On to Old Credit Accounts – Lenders love seeing established credit. If you have old credit cards you no longer use anymore because they have been replaced by newer ones with lower interest it can be tempting just to close them. This is the last thing you want to do. Old credit makes you look more established. If you have to charge one small thing on the card and pay it off monthly to ensure the card remains open then do so.

4. Always Pay on Time – Paying bills late has more consequences than just being stuck with late charges. Payment history accounts for about 35 percent of your credit score. Get in the habit of paying bills early, so you are less likely to be late.

5. Pay Down Balances – Don’t use available credit just because you have it. You may be interested to learn that 30% of your score is comprised of credit utilization, so aim to keep your used credit below 30%.

6. Eliminate Nuisance Balances – If you have a dozen credit cards in your wallet from different retailers and they all have only a small balance, these are nuisances to your credit. Pay off all these cards or transfer balances to one Visa or MasterCard (preferably an old card).

When you buy a home, your credit is going to receive a lot of attention. Order a copy of your credit report from all three bureaus early so you have time to address any concerns you discover. The smallest improvement in your credit score could result in big savings with a lower interest rate.


Best Credit Repair Services – What Do the Reliable Companies Offer? How Can You Avoid Bad Ones?

Everybody who has bad credit knows how hard it can be to quality for new lines of credits, whether it’s a bank loan, credit card, mortgage, etc. Having negative items on credit reports can also increase the cost of car and home insurance. You might even have trouble renting an apartment. One way to clean your report up and get things sorted out is to turn to best credit repair services.

What, exactly, will a credit report repair company do? A legitimate company will request copies of each of your reports, carefully look over everything, identify the negative items, and determine if there is a way to remove any of them. If you suspect that you have been a victim of fraud or identity theft, this kind of company will help you obtain legal assistance. If there are any mistakes on your credit reports, the service will take all legal measures necessary to have those mistakes removed.

Even if the negative items are legitimate and caused by you, the company will at least try to negotiate to have them removed for you. While you can certainly try to have negative items removed yourself, the best credit repair services will have access to tools and resources that you don’t have. They might even have lawyers in their network. Since a legitimate company never charges upfront, you really don’t have anything to lose by requesting a free consultation.

Trying to do everything on your own will take time. For each dispute, it can take around 30 days before even getting a decision. The 30 days gives the credit bureaus to ask the creditors for more details and review everything. A credit repair company will have experts to go through the process for you and speed things up.

Since the credit repair industry is unfortunately filled with scams, it’s important to understand how they can help you and what kinds of services to expect.

What do the Best Credit Repair Services Offer

Look for services such as:

• Bureau challenges

• Inquiry assistance (confirmation whether all hard inquiries are accurate)

• Creditor interventions

• Cease and desist letters (against debt collectors)

For some individuals with poor credit, the C& D letters and relief from debt collectors will be worth investing the best credit repair services. If you are tired of getting harassed and threatened by debt collectors, it’s good to have experts – especially those with lawyers in their network – on your side who can make them stop.

Once again, never pay any credit fixing company upfront. A legitimate company will never ask for money upfront. All you have to do is request a free consultation and they will let you know if they will be able to take on your case.


Best Credit Card Debt Relief Overview: A Quick Glance of What You Need to Know About Debt Relief

Are you in deep with student loan debts, credit cards, car loans, or any other type of debt? Are even the minimum monthly payments getting too difficult for you to keep up with? Then you are likely a candidate for the best credit card debt relief programs. You have a variety of options, including debt settlement, management, negotiations, consolidation, and even bankruptcy. At the very least, counseling might be ideal.

Who is debt relief for? You might seek a relief plan if you really feel as if there is no hope of repaying all of your unsecured debts, and don’t think it’s possible to continue making payments every month. Also, if the total you owe on unpaid unsecured debts equals at least half of your gross income. Keep in mind that debt relief isn’t going to be a pain-free fix. You are likely going to experience a hit on your credit scores. But if you’ve been struggling to make payments, then your scores have probably already gone down anyway – or are in the process of it.

It can take years to recover – especially if you are facing bankruptcy. The best credit card debt relief company will evaluate your case, all of your debts and finances, and help you come up with a plan that is best for your circumstances. They might also be able to work out a deal with your creditors to help reduce interest rates, or allow you to only pay a portion of what you owe.

Debt Management With the Best Credit Card Debt Relief

A debt management plan will often allow you to pay off your unsecured debts (usually credit cards) in full, but with fees wavered or at a reduced interest rate. You will be required to make a single payment each month to the counseling agency, which will then distribute it in an ideal manner among your creditors. This isn’t the same thing as a consolidation loan, which might also be something you’ll want to look into.

The good thing about a debt management plan is that your credit score might not be affected too badly – if it is at all. However, closing the accounts after paying them off can hurt your scores, but you’ll be in a better position to recover quickly. Needless to say, failing to make payments to your credit management agency WILL hurt your credit and make it difficult to apply for more credit later on.

What about fees for being involved in a debt management or relief program? ONLY choose a service that will charge you no more than 20% for an in-house program, and with the option of working with a network of attorneys.

You should be given a free savings estimate before even having to sign anything. One reputable company that has a really high rating and positive reviews is CuraDebt. You can get a free savings estimate and a viable solution tailored to your needs. CuraDebt really is considered to be the best credit card debt relief company.