KEYS TO REBUILDING CREDIT AFTER BANKRUPTCY

By: Lance T. Denha, Esq.

In today’s economic recession it’s more difficult for the average consumer to manage his/her current obligations. Whether it be a mortgage, credit card, car loan, or any other type of debt, when someone finds it difficult to manage these payments they might find themselves with no other choice but to file for bankruptcy.

The typical client is concerned about credit after bankruptcy and how to establish credit again. Rebuilding credit after filing bankruptcy is not difficult, but does take time. It is obviously important to stay current on any new or existing obligations that you have. For example, taking out a new loan, even a small one, and making the monthly payments consistently and on time will cause credit scores to increase. One very important factor that is often looked at by lenders (in re-establishing credit) is a debtor’s job status and how long he/she has been with their present employer. Unfortunately, people who are self-employed or change jobs often are penalized for this.

If anyone has declared bankruptcy and is seeking advice on how to reestablish credit after a bankruptcy discharge, I recommend the following two-part plan to increase the potential for credit repair success;

1. Establish new lines of credit with various credit card companies.

2. Pay bills immediately and in full.

Establishing New Lines of Credit

Be very weary of companies that claim to be able to wipe the bankruptcy slate clean from a debtor’s record. These companies cannot erase the past bankruptcy from a credit record. The good news is, however, that credit bureaus will pay more attention to your recent activities than to things that happened in the past, therefore, if debtors immediately start using credit responsibly, they will be well on the way to a clean credit record and better scores with the credit bureaus. Obtaining new lines of credit after bankruptcy tells the credit bureaus that while debtors might have hit hard times, they are seeking out reestablishing a new and more productive relationship with their creditors. By doing such, debtors can easily raise their score well before the bankruptcy is removed from your credit report in ten years.

As part of a plan for credit repair, debtors should open new credit accounts and keep such accounts active by fully paying the entire balance each month. It is essential to keep the cards active, but keep the balance as low as possible on a monthly basis. However debtors should keep in mind because of the previous issues with their credit, debtors more than likely might not qualify for loans and credit cards with low interest rates which is why it is advisable to pay bills immediately and in full.

Pay Bills on Time and in Full

It is highly advisable to pay your debts immediately upon receipt of the monthly bill. I cannot stress this enough. This is the number-one rule of reestablishing credit after a bankruptcy. Debtors need to be informed that because of a recent discharge, the credit-scoring models consider such debtors as an extremely risky borrower, so any indication that a debtor is slipping into old patterns will not bode well for a debtor’s credit score.

Another important task to perform is to obtain a copy of a credit report 6-12 months after the bankruptcy case is completed, and see if there is accurate reporting. Remember there are no magical shortcuts as many of these credit repair companies want to make you believe however the tips and resources may very well assist a distressed borrower or debtor to getting back on track in a swift manner.