Your credit recovers after bankruptcy. The irony is that the top objection to filing bankruptcy is the perceived 10 year death sentence to ones credit; yet, after bankruptcy creditors will stumble over each other and rush to offer you new credit. To rebuild, you need only do 3 things, Repair, Rebuild, and Relax.
REPAIR: Dispute any errors on your credit report.
What should your credit report look like after bankruptcy? The accounts on your credit report don’t simply disappear from the report. For all debts discharged in bankruptcy, the account entry should show (1) zero balance due, (2) the comments or status section should state “included in bankruptcy,” and (3) no late payments stated after the date you filed bankruptcy. However, negative entries that predate your bankruptcy stay on your report.
Obtain a free copy of your credit report from annualcreditreport.com about 2 months after your bankruptcy discharge. If any entry is not reported as stated above, you need to dispute the account with the Credit Reporting Agencies (“CRA”) (do not contact the creditor directly). Each CRA’s website contains instructions on disputing entries, but I recommend doing so in writing. The dispute process takes about 30-45 days; 90% of the time, a dispute will resolve the issue.
REBUILD: Obtain new credit.
Credit cards have the greatest impact on your credit score, so focus on obtaining ONE new credit card as soon as possible. If you can, try to get an unsecured card with no annual fee; but many people after bankruptcy can only get secured cards, that is okay. Note, secured credit cards are not pre-paid debit cards, pre-paid debit cards are not reported. Also, make sure the card reports to the CRA’s; most will, but double check (some small credit union cards don’t report). These cards initially will have low available balances; charge no more than 10% of the available balance per month and pay it off each month. For example, if the available balance is $1,000, charge no more than $100 per month. Your goal is eventually to have 3 credit cards. So, you immediately want to start with whatever card you can get, but for the other 2, wait until your credit recovers to the point that you can get unsecured, non-sub prime, credit cards from major providers; which usually takes about 6 to 12 months.
RELAX: “Time heals all wounds”
The natural passage of time heals your credit. Bankruptcy is not a 10 year death sentence to your credit. As negative items age, the entries have less impact on your credit score. Bankruptcy will be on your credit report for 10 years, but it only meaningfully impacts your credit for about 3 years. For example, current FHA mortgage lending guidelines will not disqualify a borrower for bankruptcy after 2 years from bankruptcy discharge. If you take the time to Repair and Rebuild, then relax and live your life; your credit will rebuild.
Additional DONT’s
DON’T: Don’t pay for credit monitoring.
DON’T: Don’t pay for a credit repair service, most are scams and the ones that aren’t do what you can do easily for yourself.
DON’T: Don’t listen to anyone that says she can delete your bankruptcy from your credit report. Your credit report is allowed to contain true information about you. (However, inside tip, if the entry about your bankruptcy has an error, e.g. wrong date, etc, you can dispute it and sometimes the bankruptcy gets removed).
DON’T: Whatever you do, don’t reaffirm a debt in your bankruptcy for the sake of credit reporting. I will be blunt, doing so is stupid. Your credit will recover after bankruptcy, do not sacrifice the immense value of your bankruptcy discharge out of fear about your future credit.
Additional DO’s
DO: Sign up for free credit monitoring. Annualcreditreport.com only allows 1 free report per year. Depending on how trashed your credit is prior to bankruptcy, the Repair phase can take some time and even if you fix an item, it can reappear. So, you will want to monitor your credit for about a year after bankruptcy.
DO: Lastly, seriously evaluate your need and interest in rebuilding credit; consider that cash is king, debt is slavery.
REVELATIONS 13:16-17; 16 He [the beast] also forced everyone, small and great, rich and poor, free and slave, to receive a mark on his right hand or on his forehead, 17 so that no one could buy or sell unless he had the mark, which is the name of the beast or the number of his name. Eerie how that passage describes our credit score.
Additional Resources
To access your credit report for free, visit:
http://www.annualcreditreport.com
The Credit Reporting Agencies
Free Credit Monitoring
(note, Credit Karma uses your information to make offers to you)
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