Friday, June 15, 2012

Restoring credit after filing for bankruptcy





I guess it should come as to no surprise that since starting this blog back in 2010 the most popular post I have had so far (based on comments and page views) was a post about the steps of filing for bankruptcy.

It was very flattering to read some of the comments from people all over the country talking about questions they had about the B.K. process being answered on my post. It was also a very disconcerting sign of the times.

So as an attempt to balance out the bad with the good, here is a step-by-step process of rebuilding your credit after filing for bankruptcy. Most people who file for bankruptcy are at least $20,000 in unsecured or credit card debt, and have no real way of catching up. Filing for bankruptcy can be a gigantic load off your back and offer a fresh start (well almost).

As a basic example someone with an excellent FICO score of 800 with $25,000 of debt who files for bankruptcy due to a job loss or medical emergency can see their credit score dip all the way down to the high 500 to low 600 range, which now makes them a much riskier borrower than they used to be. Here are the things you need to do to get your credit scores back up after wiping your debt slate clean.

1.     Put yourself on a very strict budget and do absolutely everything you have to do not to put yourself in the same position again.  Remember you can only file for Chapter 7 Bankruptcy (the most common kind) once every 8 years. It’s meant to be a last resort not a free pass on paying your bills.
2.     Pay for a credit report 3-6 months after filing for bankruptcy to see where your scores stand. Myfico.com offers a very accurate report along with FICO scores for around 20 bucks.
3.     Know the difference between FICO scores and Vantage Scores. FICO scores are what 90% of creditors look at while Vantage Scores are looked at by second and third tear lenders looking for a quick approval with inaccurate and inflated scores. FICO scores range from 300-850 and Vantage Scores range from 500-990.
4.     Believe or not, you will be barraged with credit card offers and solicitations after filing for bankruptcy. Creditors know that people with a bankruptcy are desperate to obtain credit cards and circle those who have filed for BK like Vultures armed with pre-approval offers with insanely high interest rates. Apply for a card with a very low limit ($500 or less) and pay off your bills on time and in full every month. This is the number one way to rebuild your credit scores and credit worthiness.
5.     Be patient. There is no quick way to rebuild your credit. It will take a good 2 to 3 years to get your credit scores back to a respectable level after filing for BK. Just focus on living within your means and not repeating the same mistakes twice.
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