Rebuilding Credit After Bankruptcy

Some people put off bankruptcy, or refuse to file altogether, because they are afraid it will “ruin their credit.” But, to be blunt, their credit is already “ruined,” in many cases. Negative information, like past-due mortgage payments or automotive repossessions, stays on credit reports almost as long as a bankruptcy filing. Furthermore, by following a few straightforward procedures, many former bankruptcy debtors do not even remember that they filed voluntary petitions after a few years pass by.

Professional Credit Restoration

Generally, consumers should be very wary of so-called “credit doctors” and other firms that promise amazing results after they receive small retainers. Typically, these companies do little more than tell you to pay your bills. Moreover, the exact makeup of FICO and other credit scores is a closely-guarded secret, so no one can say with any authority that making X payment will increase your credit score by Y amount.

That being said, experienced bankruptcy lawyers often offer referrals in this area to an effective credit restoration service. If nothing else, your bankruptcy lawyer can review the paperwork before you sign and send money, to give you additional peace of mind.

Regular Debts

Conventional wisdom is that paying bills on time is the best way to raise credit scores. That belief is partially true and partially untrue.

Mortgage payments, car payments, and student loan payments are all reported to the credit bureaus. Make them on time, and your score goes up. Make them late, and your score goes down. It’s as simple as that. As most people have at least one of these kinds of loans, on-time payments are an easy way to raise scores.

But not all bills have this effect, at least not directly. Rent, utilities, and car insurance payments are generally not reported to the credit bureaus, so paying them on time will not raise your score. Bear in mind, however, that unpaid accounts eventually wind up with debt-buyers, and accounts that go to collection generally have a very negative impact on credit scores. That’s because many lenders believe that if the consumer lets an account go to collections, the consumer simply gave up and refused to pay.

New Debts

Therefore, many people need some extra help to rebuild their credit scores. It may seem odd to encourage bankruptcy debtors to obtain credit cards, but revolving debt is a very good way to raise scores. Former bankruptcy debtors are often inundated with credit card solicitations, because the lenders know that they cannot file bankruptcy again for several more years.

Choose wisely. Some secured cards do not have as positive an effect on credit scores as unsecured cards, but this is not true in all cases. As for payments, conventional wisdom is to pay the balance in full every month. But some observers believe that it is better to leave a small balance every month, so the bank earns interest.

When applying for credit cards or other debt, be upfront with the lenders. Tell them right away – before they access your credit report – that you filed bankruptcy. Chances are that, if you have a reasonable explanation for your past misfortune and have no late payments in the last six months or so, you will still get the loan. If the lender refuses to work with you, do not be afraid to walk out, because there are plenty of other lenders who will accommodate your situation.

Go With Aggressive Lawyers

At the Bentz Holguin Law Firm, LLC, we go to bat for you both before and after your bankruptcy filing. Call our Chicago office today for prompt assistance.

Resources:

http://www.consumerfinance.gov/askcfpb/1343/how-can-i-recognize-credit-repair-scam.html

https://www.wisepiggy.com/credit_tutorial/improve_credit/will-paying-bills-on-time-help-my-credit.html