How to Improve Credit Score After Bankruptcy
The following write-up provides pointers to people who would like to improve their credit scores after bankruptcy. Since every consumer has 3 credit scores, it’s worth mentioning that improving one credit score is akin to improving the remaining ones. In order to improve credit ratings after bankruptcy, the consumer would have to build his/her creditworthiness. The best way of bouncing back is by availing a revolving or a non-revolving line of credit and by repaying the borrowed sum on regular basis.
A Chapter 7 bankruptcy remains on the credit record of a person for a period of 7 years, while a Chapter 13 bankruptcy remains on the credit report for a period of 10 years from the date of filing bankruptcy. Since bankruptcy is public information, it is documented in public records and this may make it difficult to avail credit. One cannot hope to improve their scores without availing new credit. Hence, people have to look for lucrative ways of procuring loans and building their creditworthiness after a bankruptcy discharge.
Ways to Improve Credit Score after Bankruptcy
People who are interested in improving their credit scores after bankruptcy may opt for payroll deduction credit cards and secured credit cards. One can get approved for a secured credit card within 6 months of a bankruptcy discharge. The card is secured by a cash deposit that acts as a collateral for the same. Although the fees required for secured credit cards are much higher than those levied on unsecured credit cards, the consumer may find it difficult to get approved for unsecured credit cards. It’s worth mentioning that getting approved for an unsecured credit card is contingent on the consumer having good credit scores.
Since bankruptcy results in the credit score of the consumer declining by 350 to 400 points, the borrower may find it incredibly difficult to procure an unsecured credit card after bankruptcy. Most unsecured credit cards will get converted to secured credit cards within 12 to 18 months of approval, assuming that the homeowner makes regular credit card payments. Hence, a secured credit card that allows a credit limit that is approximately 50 to 100 percent of the amount of cash deposit, is the way to go.
Consumers should also try to get approved for payroll deduction credit cards since the aspiring card holder can get approved for the card regardless of his/her scores. The only prerequisite for the card is that the applicant should be employed since the amount of money that is spent is deducted from the cardholder’s paycheck over a period of 2 months.
Payment history is reported to the credit bureaus in case of both secured credit cards and payroll deduction credit cards. In case of the latter, a perfect payment history is automatically generated while in the case of the former, the consumer should pay off the entire balance on the credit card (and not just the minimum) to ensure a perfect payment history. Carrying over expenses will have a negative impact on the consumer’s credit ratings since the credit is of a revolving nature.
FHA or VA Insured Loans
Procuring a mortgage loan for buying a house, may be one of the best ways of improve credit scores. This is because a history of timely mortgage payments can help people rebuild and re-establish their credit history. FHA (Federal Housing Administration) insured loans and VA (Veterans Administration) loans are made available to people who desire to buy a house after bankruptcy.
FHA insured loans can be procured provided the consumers made 12 and 24 consecutive payments on all accounts since the time of filing Chapter 13 and Chapter 7 respectively. In case of VA insured loans, one is required to wait for 2 years to procure a loan after bankruptcy discharge.
The aforementioned solutions are not necessarily the best. It is up to people to figure out the best way(s) to improve credit score after bankruptcy.