It is not uncommon for many of our clients to rebuild their credit shortly after receiving their bankruptcy discharge. What do I mean by “shortly”? It is not an unusual event for someone’s credit score to reach 700 only two years after filing. Truly, there are ways to rebuild your credit after filing bankruptcy.
Bankruptcy allows filers to discharge debts. Each missed loan payment is a negative event on your credit report. While bankruptcy is a negative event on your credit report, it stops other negative reporting from continuing. If you file bankruptcy after you stop paying your debts, your credit score will stop its downward spiral and you can start rebuilding it immediately upon receiving your bankruptcy discharge. Your post-bankruptcy credit report should list each of your discharged debts as having a $0 balance discharged in bankruptcy.
Rebuilding your credit score does require a history of timely payments in monthly cycles. It is helpful to have older loans that have a long history of timely payments. Here are some tips for rebuilding credit after bankruptcy.
*Reaffirm a secured loan
In your Chapter 7 bankruptcy case, you have the option to reaffirm a debt. This means that it “withstands” the bankruptcy and your legal obligation to repay the debt continues. This allows you to keep collateral, such as a car, after bankruptcy. If your current on this loan at the time of the bankruptcy case, your positive payment history will remain in place. You also have the choice to surrender or return the collateral and owe nothing on the debt.
*Maintain payments on post-bankruptcy accounts
This is only a straightforward, common sense tip. As previously mentioned, payment history is the most important variable that affects your credit score. Making timely payments after bankruptcy once you have new credit is a no-brainer.
*Obtain a new secured credit card or secured loan
One noteworthy reason for getting a secured credit card is the ease with which it may be obtained. They require a cash security deposit for the account’s credit limit. For example, a $500 deposit would result in a $500 credit limit. Making timely payments will rebuild your credit and eventually you may experience an increase in your credit limit. You may even receive an offer for an unsecured credit card.
*Maintain low balances in all accounts
Do not max out your credit limit as it will demonstrate that you are insatiable, and therefore, irresponsible in the way that you handle credit. Your debt limit ratio accounts for up to 30 percent of your credit score, with credit history the only factor that contributes more. Thus, maintaining a debt limit ratio below 30 percent is a prudent financial goal.
*Make sure your positive payment activity is being reported
Lenders are not legally obligated to report your payment activity to any of the credit bureaus. You may request that they do so. Request all your post-bankruptcy lenders or creditors to report your payment activity to all three credit bureaus. This will ensure that this positive activity is noted and reflected in your credit history and report. The ultimate result is a higher credit score. It is even permissible to request that your payments for rent and utilities are reported to the bureaus. While not every credit scoring model includes these payments in the calculation of your score, positive activity such as this reflected on your credit history cannot do anything but help you when you apply for new credit.
*Consider getting a cosigner for a new loan or credit card
A cosigner on a loan or other extension of credit will increase your chances of approval after bankruptcy. A cosigner acts as a surety who assures payment of the debt if you, the original obligor, fail to make payments. Many types of loans, including car loans, mortgages, and leases accept cosigners. Despite having a cosigner, making timely payments still results in boosting your credit.
The Morrison Law Group strives for complete client satisfaction with the services that we provide throughout a bankruptcy case, as well as the ongoing services that we provide post-bankruptcy. Not all Utah Bankruptcy attorneys can make this statement, but the Morrison Law Group is not like other Utah bankruptcy law firms. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, Orem, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.