Some people do not file a necessary bankruptcy because they think it will “ruin their credit rating for seven years.” That’s partially true, because a completed Chapter 13 bankruptcy stays on a credit report for seven years. That’s also partially untrue, because the debtor’s credit rating is already very low due to current issues. Late payments, repossessions, and foreclosures also stay on most credit reports for seven years.
Nevertheless, for those who understandably do not want to wait seven years for their post-bankruptcy FICO scores to improve, here are a few tips to hasten the process.
Stay Current on Secured Debts
Late payments ruin a credit score faster than almost anything else, which means that on-time payments raise a credit score faster than almost anything else. That’s especially true of those periodic payments which are reported directly to the credit bureaus, including mortgage payments, vehicle payments, and insurance payments.
Come hell or high water, stay current on these payments after bankruptcy, not only to rebuild your credit score, but also avoid a repeat filing.
One good method is to make thirteen payments every twelve months. That usually means about another $50 or $75 a month, which most families will never miss. The cushion gives families the flexibility to make it through another rough patch. Moreover, the stellar payment history makes moneylenders more likely to defer a payment until the end of the loan rather than taking adverse action against the debtor.
Refinancing may be an option as well. Many bankruptcy attorneys can connect former debtors with banks who specialize in post-bankruptcy restructurings.
Get a Credit Card
There are plenty of credit cards available to people who recently emerged from Chapter 13 bankruptcy, mostly because moneylenders know that these debtors cannot file another voluntary petition for a number of years. Ideally, the card should be one with a low initial credit limit that is easy to raise after a few months of timely payments.
A secured card may be an option as well. Try to choose a card that does not include a “secured” designation on a credit report, because such a label diminishes the payments’ effect on a score.
It’s usually best to charge several hundred dollars a month and pay off almost the entire balance every month. In this way, the unpaid balance stays low, there is considerable activity on the card, and the bank earns a little money off the interest.
Keep Making the Debt Consolidation Payment
In most cases, a Chapter 13 debt consolidation payment is about $400 or $600 a month. Instead of giving that money to the trustee, keep it in a savings account. Your family is already accustomed to living without this money, so there is no shock. The money adds up quickly, and in just a few months, a family will have an emergency fund of several thousand dollars, which is probably enough to weather almost any financial storm.
Rely on Savvy Attorneys
Bankruptcy can be the gateway to a higher credit score. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours appointments are available.