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How to Rebuild Your Credit After Bankruptcy

After your bankruptcy is discharged your credit score will fall dramatically. There are however ways to rebuild credit and increase your score quite easily. One of the best methods is a secured credit card. These cards are fairly easy to obtain and are available through most major banks. Rent to own centers often report to the credit companies and are another great way to rebuild your credit. Just be sure to keep the payments manageable to avoid repeating the financial problems you are trying to recover from!

When rebuilding your credit after a bankruptcy it is extremely important to make all of your payments on time. Any adverse payments on a bankruptcy will limit your options on obtaining a mortgage.

If you are in a bankruptcy or have been recently discharged, you may still be eligible to refinance your home. Your mortgage broker will have programs that can fit your needs. Whether it's taking a little cash-out, or simply paying off some items not covered in the bankruptcy, it is a good idea to refinance to get you back on your feet.

Many of our customers rebuild their credit by using their home equity to refinance and take cash out to consolidate debts and pay off all of their old bills, giving them a lower total monthly obligation which they can pay consistently every month. It is a fresh start for customers who are coming out of a bankruptcy, and paying a mortgage on time month after month is a great way to improve their credit score.

After your bankruptcy is complete, you will have an opportunity to start rebuilding your life - and your finances. Although bankruptcy will stay on your credit report for up to 10 years, there are plenty of things you can do now to start building a good credit report. Two of the most important things you should do are borrow money responsibly and make your payments on time.

Here are some other tips to help you rebuild and improve your credit rating after your bankruptcy discharge:

1. Give Yourself Credit: The best way to rebuild your credit after a bankruptcy is to establish accounts that will report positive information on you. Get a single credit card with a small credit limit, use it very sparingly and pay the entire balance every month before the due date.

2. Read the Small Print: After your discharge, you may get several offers for credit cards and other loans. Know what you’re getting into before you accept these offers. Make sure you understand the interest rate, any other fees and the expected payments before you open a new credit account.

3. Prove It: Even after your debts are discharged, you may need proof that you don’t owe these creditors any more. Keep a couple of copies of your discharge papers from the court so that you can prove certain debts were discharged if you need to in the future.

4. Pay on Time: Most credit cards and utilities report late payments to credit reporting agencies. If you make late payments every month, potential lenders will continue to see you as a poor credit risk. Also, most credit cards add a late fee whenever you’re late with a payment. Avoid late fees and reports of late payments by paying your accounts in full before the due date.

Make sure that all of your paid off credit cards are closed out. You should give your credit card companies written request to close your accounts. Open credit lines with a zero balance (especially if you have many) can potentially hurt your credit rating. Only keep the cards you use regularly and the ones you have had the longest.

You should check your credit report three to six months after the bankruptcy discharge and make sure the discharged accounts are being reported as "discharged in bankruptcy". Oftentimes, creditors report the discharged accounts as charge off, collections, open unpaid or other such ways which will have a more detrimental effect on your credit score. It is very important that you keep all bankruptcy papers, especially the list of discharged creditors.

If you have not filed your bankruptcy yet, be sure to consider carrying some liabilities through the BK (ie. do not include them in the bankruptcy). This can dramatically influence your ability to re-establish credit following the filing, but is not always available.

There are five major types of information used to calculate a FICO score and they are listed below. Each type of information counts as a percentage of a total FICO score and the calculations may vary a bit from each credit agency. This is a good rule of thumb to follow:

- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of credit

Using credit is a proven way to re-build credit after bankruptcy. If you cannot get a credit card, apply for credit from department/drug stores and gasoline companies for expenses that you normally pay cash for. Also apply for a debit card, which you need to first deposit funds. You may also want to have a relative co-sign your credit application to ensure approval. Most important of all, once you are extended credit, be certain to make payments on time.

Once your bankruptcy has been discharged your credit will need to be cleaned up. Keep copies of all bankruptcy documents and attain documents from each creditor (credit cards and collection agencies) that indicate that the debt was removed via bankruptcy.


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