Rebuilding Credit After Chapter 7 Bankruptcy
For most filers, rebuilding credit can take several years after their Chapter 7 bankruptcy is concluded. Thereafter, most individuals can begin to get new loans and credit cards. Filing a bankruptcy will have a serious effect on your credit score. Once your bankruptcy is completed, it will usually stay on your credit report for approximately ten years. After filing bankruptcy, your credit score should increase with time if you do not get any negative reports from any of your creditors. However, you can improve your credit faster after bankruptcy by performing the following.
Stay Current on Payments for Non-Bankruptcy Accounts
Although a Chapter 7 bankruptcy will cancel most of the filer’s debt some non-dischargeable debt will remain. It is important to continue paying your non-dischargeable debt as it will be active on your credit report. Non-dischargeable debt includes alimony payments, child support, as well as educational/student loans. Positive payment history for child support and alimony payments is not reported on credit bureau reports. Therefore, never missing an alimony or child support payment won’t build your credit after bankruptcy. However, missed payments are and will have a negative impact on your credit.
The first step in building your credit after bankruptcy is to stay current on outstanding debt and pay it down as quickly as possible. This can be accomplished by consistently paying a greater amount each month than the minimum monthly payments. Lowering the balance of your debt will begin to improve your credit as your debt-to-income ratio will also decrease.
Avoid Bouncing from Job to Job
You should try and avoid jumping from one job to another. Although frequently switching employers does not directly impact your credit, job hopping is a commonly used factor in determining whether a lender will approve your loan.
Some of the major considerations that lenders review for loan and credit applications include:
• Job history for the last 24-36 months
• Credit Score
Get New Credit
Getting new credit is usually harder to get after filing a bankruptcy. If you do get new credit, it is very likely that your interest rates and fees will be higher. Obtaining a new credit card is one of the easiest ways to start improving your credit post-bankruptcy. Making small purchases and paying them each month you will accumulate a positive payment history and boost your credit score. Most major credit cards report to all three credit bureaus (Equifax, Experian, and TransUnion).
How To Get New Credit Post-Bankruptcy
Applying for a secured credit card is one way to receive new credit post-bankruptcy. The approval process for a secured credit card is much easier to get than a traditional credit card. A secured credit card requires a deposit to be paid on the card before you ever begin using it. Once you can establish a good payment history, you may be offered an unsecured credit card with a higher credit limit.
Another option is to get a credit builder loan. The credit builder loan is a small loan where the lender is paid prior to the debtor receiving the money. Think of a builder loan as a loan in reverse.
Gas and store credit cards are also helpful in building credit after bankruptcy. These credit cards have easier qualifications for approval when compared to other unsecured credit cards.
Small installment loans with fixed payments, such as an auto or home equity loans, are another option. While the interest rates for installment loans might be higher post-bankruptcy, they can be beneficial in rebuilding your credit.
Find a Cosigner or Be Added as an Authorized User
Consider finding a cosigner with good credit if you are having trouble getting a loan or qualifying for a rental agreement. Having a loan approved with a cosigner does not mean that they are the primary party of the loan. A cosigner with good credit can improve your chances of getting approved because they are a financial backer. Another advantage of having a cosigner may also get you a lower interest rate from the creditor.
Being added as an authorized user on the credit card of a close friend or family member may benefit you. As an authorized user on another person’s credit card, their payment history will be reflected on your credit report. If the primary card holder regularly uses the card and maintains a good payment history, their credit will improve.
Apply for New Credit Wisely
Applying for new credit applications may present negative marks or “dings” to your credit report. The occurs because a hard inquiry is made each time that you attempt to get approved for credit. Applying for multiple credit applications may bring down your credit score because creditors view too many inquiries as a risk factor.
If you have regularly been denied new credit cards, monitor your credit report to guard against fraud and to be generally aware of any changes. In addition, be aware of the credit card’s underwriting standards before you submit your application. This can prevent you from taking a hit on your credit report by making too many inquiries.
If Renting Activate Rent Reporting
If you rent, you can enroll in a program that will report each monthly rent payment to the credit bureaus. Paying rent on time will have a positive impact in rebuilding your credit if it is recorded by the credit bureaus. There are two types of services that can record a renter’s positive payment history; renter initiated and landlord initiated.
Some of the independent services, which can be initiated by the renter, include:
For positive rent payments to be reported in your credit report certain requirements must be met. The main requirement for these service providers is that your landlord must confirm your monthly rent.
Some of the landlord initiated rental payment services include:
• Clear Now
• Payment Report
• Pay Your Rent
Stay Current with Payments for New Credit Cards
Payment history is one of the most important components that influences your credit score. When rebuilding credit after bankruptcy, making timely payments with new creditors is vital.
Some great tools to help you stay on top of making timely payments include:
• Signing up for autopay
• Paying off credit cards multiple times per month
• Using payment reminder apps and calendar reminders to alert you when a payment is coming due
• Setting up budgeting software to better manage your finances each month. Some of the popular software applications include Mint, Quicken, and YNAB.
Elect for Payment Reporting to Credit Bureaus
There is no official requirement for creditors and lenders to report the status of your account to the credit bureaus. Despite there being no reporting requirement, most creditors and lenders still report. However, non-credit related payments such as cell phone bills, rent, and utility companies, only report your status if delinquent. Asking these creditors to report payment history can certainly give your credit score a boost in a relatively short time. National Consumer Telecom & Utilities Exchange (www.NCTUE.com) is one such credit reporting bureau.
Watch Your Credit Balances
The ratio of available credit to your balance is called a credit utilization ratio. A good rule of thumb is to make sure that your balance stays below 30 percent of your available credit. A lower credit utilization ratio is one factor that creditors and lenders use in approval evaluation.
Verify That Your Bankruptcy is Accurately Recorded in Your Credit Report
Bankruptcy will seriously impact your credit report. However, errors which can occur in the recording process, can make that impact worse. This includes showing discharged debt as being active and/or late or charged off.
Ordering your credit reports post-bankruptcy is one way to ensure your bankruptcy is correct on all the reports. You can order one comprehensive credit report every year for free. The free credit report includes separate reports from all three major reporting agencies; Experian, Equifax, and Trans Union. If you find errors on any of your credit reports, be sure to dispute the error immediately. Two websites that provide a comprehensive and free credit reports annually are, www.annualcreditreport.com and www.freecreditreport.com.
How Many Years Does Bankruptcy Stay on Credit Report?
Generally, a Chapter 7 bankruptcy should disappear from your credit report in 10 years. A Chapter 13 bankruptcy is quicker and is usually removed in 7 years from a credit report.
Credit Report Monitoring Post-Bankruptcy
Monitoring your credit report regularly and filing disputes, if errors are found, will help you build credit after bankruptcy. If you run into problems filing disputes, a credit repair service may be able to help.