ALCOCK & ASSOCIATES, P.C.

HOW TO REBUILD CREDIT AFTER BANKRUPTCY

HOW TO REBUILD CREDIT AFTER BANKRUPTCY

Your credit score will almost certainly drop after filing bankruptcy; however, if you were delinquent on payments prior to bankruptcy, it was probably already low.  The first step in rebuilding credit is to obtain a copy of your credit report several months after receiving a bankruptcy discharge.  Your creditors are required to update the status of accounts as having been discharged in bankruptcy, and they should do this within a few months after the court enters the discharge order.  Properly reporting debts as discharged on your credit report is important for showing that the outstanding balances have been resolved, which in turn operates to reset your credit.

Once your credit report is current, it’s time to take the second step by applying for new credit.  One of the best ways to qualify for credit after bankruptcy is through a secured credit card.  This is where you deposit funds as collateral for a credit card with a low credit limit.  In using the secured credit card, you should stay well below the credit limit and pay off the balance each month.  Positive reporting by the secured credit card company should help rebuild your credit.  Retail and gas cards are a step up from a secured credit card, and typically easier to qualify for than major credit cards.  

Eventually, you will progress to qualifying for an unsecured major credit card.  You should maintain a low utilization rate, staying below approximately 30 percent of the available credit, and make timely payments.  Although many people want to avoid credit cards after going through bankruptcy, they are usually the easiest way to rebuild your credit.  But it’s important to selectively apply for credit cards because too many hard inquiries will hurt your credit score.  

It is possible to expedite the credit rebuilding process by having a family member or friend with good credit as a co-signer.  Another option is for someone you know with good credit to designate you as an authorized user on their account.  However, the person helping you out is liable on the debt, on top of putting their own credit score at risk, so making timely payments is crucial.  

If you are diligent about rebuilding your credit, the day will finally come where you have a 700 plus credit score and are ready for major purchases like a car or a house.  With respect to mortgages, there is an automatic two-year wait after filing bankruptcy for VA or FHA financing.  Although there is no mandated wait for conventional mortgages, they typically have more stringent qualification requirements than VA or FHA loans.  Generally, those who successfully rebuild their credit can expect to obtain a mortgage with decent terms roughly three years after bankruptcy.

 

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Alcock & Associates P.C.
2 North Central Avenue, 26th Floor
Phoenix AZ 85004