Blog System

Simple steps for a LIFE after Chapter 7 or 13 bankruptcy

Almost anyone can get credit soon after bankruptcy discharge in Georgia. It's just a matter of knowing how. Our North Atlanta law office serves is decanted in helping you get financial life back on track ASAP  

It's true that bankruptcy deals a devastating blow to your credit and your credit score, but  Long before the bankruptcy drops off your credit report, you could be qualifying for loans with good rates and terms.

Clean up your credit report

One common problem people emerging from bankruptcy often face is that credit reports frequently show accounts as open and overdue -- when in fact they were closed and the obligations wiped out as part of the bankruptcy.

If you encounter this, you need to contact the credit bureaus and insist that those accounts be properly reported as "included in bankruptcy." It's the only way your credit can recover.

If you have other serious mistakes on your credit report, those need to be corrected as well. Your credit score is based on information in your credit report, so errors on your report can seriously dampen your score.

Get a secured credit card

You need two types of credit to quickly rebuild your credit score:

·         Installment: auto loans, student loans or mortgages

·         Revolving: credit cards or home equity lines of credit

Most recent bankrupts have trouble qualifying for a regular, unsecured credit card. So the best solution usually is a secured card, which generally gives you a credit limit that's equal to an amount you deposit at the issuing bank.

Typically, that's $200 to $500, which may seem like a pittance compared with the credit limits you enjoyed before your bankruptcy. But don't make the mistake of using your available credit.  Maxing out your credit cards hurts your credit score.

You don't want to charge more than 30% or so of your credit limit, and you want to pay the balance off in full each month.  Light, regular use of a credit card  is what helps build your credit.

And contrary to what you might have heard, you typically don't need to carry a balance or pay credit card interest to build your score, since the leading credit scoring formula doesn't distinguish between balances that are paid off and balances that are carried month to month. Get in the habit now of not charging more than you can pay off every month; your credit score and your finances will be the better for it.

You also shouldn't grab just any secured card. Look for the following:

·         No application fee and reasonable annual fee.   Some secured cards tack huge upfront and annual charges onto their accounts; you don't need to pay these to build your credit.

·         Reports to the major credit bureaus.   You're not doing your credit score any good unless your payment history is being reported to the three major bureaus: Equifax, Experian and TransUnion. Before you apply for a card, call and ask if the issuer regularly reports to all three.

·         Converts to an unsecured card after 12-18 months of on-time payments.   Good behavior should get you upgraded to a regular credit card within a year or two.

Get an installment loan

If you have student loans (which typically aren't dischargeable in bankruptcy), you can use them to rebuild your score. Make your payments on time, all the time, and try to pay more than you owe whenever possible. Next to making on-time payments, paying down your existing debt is one of the best ways to improve your credit score.

Ron of Atlanta took this to heart, making double or triple the minimum payments required to retire his $21,000  student loan debt within three years of his bankruptcy filing.

"The fact that I had to repay my student loans (rather than having them discharged) might have helped me in the long run," he said.

It's unlikely in the current credit climate, but you may be able to qualify for a high-rate mortgage as little as six months after a bankruptcy. You're probably better off waiting until you can qualify for an FHA loan, though. You can typically get one just two years after your bankruptcy case has closed, as long as you've maintained good credit habits since then. FHA loans have interest rates that are usually only half a percentage point higher than regular mortgage rates.

·         Auto loans can also help you rebuild your credit -- just be prepared to pay nose-bleeding rates at first.

·         "My first vehicle out of bankruptcy (had an interest rate of) 21%," said BD of Buford GA, who applied for the loan just a few months after his debts were discharged. "After paying this for about two years, I went and traded it in and purchased another (at) 13.99%."

·        

·         He refinanced this second loan a year later at 7.95%. Five years after his bankruptcy filing, Nelson was paying a reasonable 6% rate for his auto loan.

·         If you go this route, try to make a big down payment and choose a loan that doesn't have a prepayment penalty. That way, you can refinance the car to a lower interest rate as your credit improves.