How to rebuild your credit after bankruptcy
Your bankruptcy has been discharged. The next step is to rebuild your credit. Chapter 7 bankruptcy stays on your credit report for 10 years, and chapter 13 bankruptcy stays on your credit report for 7 years; however, you can usually rebuild your credit within a year or two following the bankruptcy discharge. These are some of the steps to rebuild:
1. First, order a copy of your credit report approximately three months after you get your bankruptcy discharge. You are entitled to get a free copy of your credit report from all three major credit bureaus once a year at http://www.annualcreditreport.com. Make sure that your debts show up as “discharged in bankruptcy” on the credit report. If they do not, file an online dispute. Your report should be corrected in approximately thirty days.
2. If you reaffirmed a debt in bankruptcy, such as a mortgage or car loan, the creditor should report your payments on your credit report. Your score will eventually go up. Again, check your credit report to make sure that the lenders are reporting your payments.
3. Apply for 3 credit cards. I am aware of at least three companies that solicit bankruptcy clients for preapproved credit card offers, with annual fees of $0 to $39 per year with no other charges. If you use the cards to buy gas and pay them off in full at the end of the month, your score will go up.
4. If you didn’t reaffirm any debts and you can’t get any credit cards, ask your bank if they have a secured loan program. For example, you might purchase a $1,000 certificate of deposit from them and they give you a $1,000 line of credit. You might also be able to get a secured credit card. Keep in mind the secured credit cards can charge very high fees, such as $150.00.
5. Look into lease to own options on housing. Particularly in Cape Coral, many investors purchased foreclosed homes for cash and are now leasing them with options to purchase. The lease purchase option gives you the opportunity to restore your credit over a few years and also to apply some of the lease payment toward a down payment on the purchase.
One of my chapter 7 clients rebuilt his score from 500 to 660 and was able to get a car loan on a new car for 5.75 perent interest within 9 months of getting his discharge. Another client qualified for a mortgage at 4% interest 3 years after his discharge.
There is no hard and fast rule for rebuilding your credit score. Every person’s situation is different. Factors that will influence your ability to get credit include your employment history, your income to debt ratio, the amount of down payment you are willing to contribute, and the overall economy. The federal government is imposing strict lending standards at this time for mortgages. Currently, in Southwest Florida, most of banks are requiring at least three years after your discharge to give you a mortgage. FHA underwriting is allowing financing a mortgage if your chapter 7 discharge is 2 years old. FHA also allows financing if you have filed chapter 13 bankruptcy, and you have been current on your payments for 1 year.