How will bankruptcy affect my ability to get credit in the future?
There is no magic formula to re-establishing credit after a bankruptcy filing. A bankruptcy filing remains on the credit report for ten years, and, despite what some disreputable “credit repair” agencies may claim, cannot be removed until the ten years have elapsed. However, once a discharge is entered, the person generally can obtain an auto or even a home loan immediately. The creditor may charge a higher interest rate.
Now that it’s over, how can I rebuild my credit?
Your ability to reestablish credit after filing bankruptcy is better than it has ever been. After you get your discharge, you will receive many solicitations from lenders offering to finance homes, vehicles and credit cards.
Here are some tips on responsibly and successfully reestablishing your credit:
1. Live within your means. Do not unnecessarily increase your debt to income ratio by taking on credit to purchase luxury items that you DO NOT NEED. Your payments on consumer debt should equal no more than 20% of your expendable income after costs for housing and a vehicle.
2. Pay your reaffirmed, pre-bankruptcy debts on time.
3. Pay your utility bills and rent on time.
4. Open a checking or savings account. Lenders may look at this to determine if you can responsibly handle money.
5. Apply for store and gas credit cards where you would normally pay cash. Use but pay timely.
6. Apply for a secured card where you deposit cash and charge against it. Pay advances back over two months so that they will be reflected as positive marks on your credit report.
7. Find a friend or relative to cosign for you on a loan and pay it on time.
8. Look for car dealers and mortgage brokers that attest to be “bankruptcy friendly.” Buy a used car so you do not get hit with the depreciation that occurs during the first two years of a new car purchase.
9. Stay away from payday loans that are at high interest rates and are a “bad credit” trap.
10. Write a letter to each credit reporting agency explaining any unusual circumstances that lead to you filing.