How to Rebuild Your Credit After Filing For Bankruptcy
Would you believe that the concept of a credit score was created almost 30 years ago? The FICO (Fair Isaac Corporation) score was established in 1989. Before then, there was no uniform system of calculating one’s credit score. A person’s credit history was created by the records kept by neighbors and merchants. Could you imagine relying on your neighbor Bob to judge your credit? What if you got into an argument with him? It could be bad for both you and your credit report.
In the early 1800s, Merchants decided to come up with an unbiased way to generate a person’s credit report. It was based strictly on the purchases, costs and when they were paid (or paid off). The best part of a credit report back then was that when you moved to a new region, your report was wiped clean – as in the saying, “to wipe the slate clean.” There have been many credit records written and stored in different agencies throughout the years, but it all has boiled down to the top three credit reporting agencies: Experian, TransUnion, and Equifax.
Today, we solely rely on FICO scores. This score tells you and creditors how good your credit is. It’s easy to check your score, and it’s a good idea to keep your credit monitored.
Credit reports contain vital information about you and your spending habits, much like your bankruptcy case. Many who have filed for bankruptcy believe that their credit will be ruined for the rest of their lives. Bankruptcy is a serious mark on your credit report, but that mark won’t be there forever. Now that you have been discharged, you should start to build your credit. You’re probably thinking: Wait! I have been through enough; I am going put off building my credit for a while. But, why wait?
Building Credit after Chapter 7 Bankruptcy
At Cibik & Cataldo, we have filed over 20,000 personal bankruptcies. We have seen clients who feel like they have hit rock bottom and have managed to climb their way back to a better financial future. You can have great credit again, but it will take some time and work. You can’t expect to be great shape after only one workout.
Easy Ways to Get your Credit Back on Track
Apply for an Unsecured Credit Card: After you have been discharged from a Chapter 7 or Chapter 13 bankruptcy, you want to start small. We suggest getting an unsecured credit card. This type of credit card is designed for those whose credit has been damaged by bankruptcy. You have to put a deposit down on these cards, such as a Fingerhut Credit Account or a First Access Visa Card, unlike with a secured credit card (some credit cards have an annual fee.)
Once you have gotten one of these credit cards, you want to make a small purchase (e.g. a song on iTunes or a Kindle book on Amazon,) and you should pay it off as soon as you can. However, it is okay to have a small balance on the card just as long as you can pay it off quickly. From there, you can start to make bigger purchases and more frequently. You can also ask the credit card company for an increase in your credit limit. After a few years, you’ll be ready for a secured credit card.
It’s important to note the difference between an unsecured credit card and a prepaid debit card. A secured credit is used to build your credit and requires a deposit. If you don’t pay your bill, the money is drawn from the deposit. A prepaid credit card is one where you “load” money onto it. If there is no money on it, you can’t pay your bill. This type of card will not help you build your credit because if you use it for automatic purchases (i.e. Internet hosting bill,) and there isn’t enough money on the card, you will get hit with a late fee for nonpayment. Remember, any late payments go on your credit report.
Pay Existing Debt: You should pay whatever existing debts you have on time and pay them off. These could be debts that were not listed in the bankruptcy.
Get a Credit Builder Loan: This type of loan helps build your credit and is offered at Credit Unions. For example, you can get a $1,000 loan and put it into a CD. Make the payments on time, and the bank will report it to the “big 3” credit bureaus (TransUnion, Experian, and Equifax.) After 12 months, you will have paid off the loan and have $1000! It will also help you create a budget for the loan.
Become a Credit Card Authorized User: You can become an authorized user on someone else’s credit card. You won’t legally be responsible for the debts because the credit card is not under your name. However, if the account holder does not pay the debt or is late with payments, it will hurt your credit score. It’s also a great way to teach your child how to responsibly use a credit card.
Get a Cosigner: Ask someone you trust to co-sign on a loan or credit card with you. This shouldn’t be handled lightly because, again, you are putting the other person at financial risk. And, it’s much easier to get a car loan, especially if you have a cosigner.
Get the Facts Today
We offer a free consultation to help you navigate through bankruptcy. We don’t leave you high and dry once your personal bankruptcy case is done; we help you get the tools you need to build your credit history up again to where you can purchase a new home or car without worrying about your credit.
There was a time not too long ago where there were millions of bankruptcies discharged. These people (individuals and families) have learned how to get their credit score back up to above a 700 and so can you. Aside from being on a new budget and creating a new lifestyle, waiting is the hardest part.
Fortunately, there are more credit resources for those who declared bankruptcy today than there were 20 years ago. And, there more reasons for declaring bankruptcy, other than unwise spending. The economic downturn ten years created a new financial landscape. At Cibik & Cataldo, our legal staff will give you the peace of mind and expert guidance needed during this stressful time.
If bankruptcy is the solution to your financial problems, let us be your advocate. We know the consumer bankruptcy laws of Pennsylvania and how they apply to your unique case. Contact us today at (215) 735-1060 to set up your consultation. We can meet at a time that works for you. We are located in Center City, Philadelphia, close to SEPTA trains and bus routes.
We are a debt relief agency that helps people
seek bankruptcy protection under federal law