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8 Simple Tips For Rebuilding Your Credit After Bankruptcy

By John Wallace


If you have a recent bankruptcy, it's a pretty sure deal your credit scores have dropped quite a bit. Though time will gradually cancel out much of the damage, it's still critical that you begin working on cleaning up any remaining credit issues and reestablish a good payment history to get your credit rebuilt as quickly as possible. The following are a few simple steps that can help you rebuild your credit more quickly and make it easier to qualify for a mortgage in the future.

1) Make your payments when they're due. This is an self evident point, but it's still worth mentioning because it's so essential. Lenders will be looking specifically for proof that you've reestablished your credit with good payment histories. Even a solitary missed payment could make it very tough to qualify for a new home loan. Be sure to make all payments on time without fail.

2) Get a secured credit card. Because of the bankruptcy, you may have few credit accounts with which to reestablish a good payment history. It's also likely that lenders won't be too interested in lending to you. One way to get around this problem is to obtain a secured credit card that is backed with your own cash on deposit. This is a great way to immediately rebuild your credit profile with a good payment history.

3) Check your credit regularly and clear up any issues right away. You're entitled by federal law to get a free credit report once every year from AnnualCreditReport.com, but it's always a good idea to check it more often. Make sure you're always grabbing data from all three major credit bureaus: Equifax, TransUnion, and Experian. If you find any errors, be sure to contact the bureau with the offending account and get it fixed as soon as you can.

4) Clean up charge offs and collections. Even if your bankruptcy wiped out all your debt, it's not unusual for old accounts to stick around as derogatory items like charge offs and collections. Even if you don't owe much and the account is old, it can still do damage to your scores and make it harder to qualify for a mortgage. It's often possible to negotiate down the balances to pennies on the dollar, but be sure you get any agreement in writing before you put a check in the mail.

5) Keep revolving account balances below 30% of the credit limit. If you carry large balances on your credit cards, the credit bureaus may see you as "maxed out" and rate down your scores - even if you never miss a payment. It's essential to keep your balances below 30% of your available credit limits at all times.

6) Be sure your home equity line of credit (or HELOC) is reporting as a mortgage. Mortgage companies will often report a HELOC as a revolving account instead of a mortgage in your credit file. For the reason we already brought up, this can damage your scores if you're carrying a balance that's at or near the limit.

7) Keep older credit card accounts open. If you still have older established accounts, don't be quick to close them out just because you don't use them anymore. Old accounts are helpful for your scores, so don't damage your credit history and scores by canceling old accounts.

8) Avoid cosigning. Trying to cosign is probably pointless if you have a recent bankruptcy, but down the road when your credit starts getting better, avoid cosigning. All your hard work rebuilding your credit could be gone in an instant if the person you cosigned for fails to make their payments. And because you're legally obligated on the debt, the lender could come after you for any balance owed.

It's worth noting that derogatory credit items such as collections and charge offs will stay in your credit file for seven years even if they're paid off. However, the impact they'll have on your scores will lessen over time. Bankruptcies stay on your credit for 10 years.

Let us also emphasize the importance of living within your means. Just because it's important to use credit so you can build up a credit history again doesn't mean it's a good idea to load up on a ton more debt. Don't borrow unless you really need to, and keep your level of borrowing well below that which you can easily afford to pay back quickly.

These tips will go a long way toward helping you rebuild your credit, but understand that it takes time. There's no quick fix, but with a little time and effort, you can get your scores back to where they need to be and more easily qualify for a great mortgage loan.




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