Recovering from Bankruptcy
Many are confused as to what steps need to be taken after bankruptcy. The first step of recovering from bankruptcy should be credit repair. Bankruptcy can take a large toll on your score, making it very low. If you are seeking a mortgage in the near future, it is imperative that you work on increasing your score right away. This is the first thing lenders look at before making any decision.
It sounds strange but you improve your credit by gaining credit. The good news: it isn’t too hard obtaining credit. You have to start out right, though. Obtaining a mortgage is not a first choice; this step should come later in the future. You must start at a much simpler place before you move onto larger credit such as a mortgage.
Some banks and lenders offer “secured” credit cards, even to those who have filed for bankruptcy. This option is sure to give your credit score a needed boost. The account can have a limit that is very reasonable, even as low as $200. This low fee makes the card “secured,” and ensures that you will be able to manage the pay back. When you put the money down on the credit card, you will then have a spending limit that is of that amount. The interest rates are high for this type of credit, and thus should be used on small, occasional purchases. To make sure that your credit rate is in fact improving, make the payment on time.
Even with secured credit cards, you have to make sure you are getting the best deal. The best, secured cards come with good annual fees and no application costs. To ensure good progress, call to confirm if your card lender reports to the credit bureaus frequently. You should look for a secured card that transforms into an unsecured credit card after a year of regular, timely payments. You deserve this if you have proven yourself reliable.
Don’t take a breather just yet. There is still more work involved. You should check to see if your credit history is indeed correct. Your bankruptcy will stay on your report for up to ten years, however, the issues that lead up to your filing does not have to remain on paper. If the report still displays issues that should have been erased after your filing bankruptcy, you should contact different credit bureaus and request that this info be removed or vaguely described as “included in bankruptcy.”
A savings account could possibly save your credit score. Opening an account and saving at least 5% of your wages will help bring you back. But also, this can be extra cash you can use when it is really needed.
Car loans help, but the major setback is the outrageous rates that you may have to accept because of your low credit score. The rates can be up to 20%. If decided to go with a car loan to re-build your credit, get the most inexpensive car possible. And if the interest rates are truly bad you may want to trade it in as soon as you can. There is good news out of all of this. If you make regular payments for a few years, your interest rates will lower drastically.
If you detest outrageous rates, you may want to stick with some of the simpler steps and then look for a mortgage. The key is to find some way to make sure that you are taking steps to mend your credit score. A secured credit card with steady repayment, a checking account and paying all of your utility bills on time will help to heal your score. After these steps, it is likely that you will be able to find a lender that will work to get you a mortgage loan. You may not find an “A-list” lender who is willing to work with you, but there are “B, C, D” lenders who can help. There may be fees and high interest rates involved, though.
The first step after bankruptcy is to improve that credit score, this we now know. But the next important step is to avoid bankruptcy in the future! When looking for a house and a mortgage loan keep in mind that the monthly payments must be reasonable so that you can maintain a steady re-payment schedule. Purchase only what you need and save all you can to provide a financial cushion.