Credit After Bankruptcy


Importance Of Credit After Bankruptcy

By Gustan Cho

Credit After Bankruptcy
Gustan Cho Associates

Many folks who just went through a bankruptcy have a goal that they will never obtain credit and everything they purchase will be purchased with cash.  If they cannot afford it by paying it in full, they do not buy it:  This is the mentality they have but this belief, unfortunately, will hurt them in them getting a mortgage loan in the near future.  Credit is extremely importance when it comes to getting qualified for a mortgage loan.

How Can I Get Credit After Bankruptcy?

Everybody who files bankruptcy automatically assumes that just because they have filed bankruptcy that they cannot get credit.  This is normally true when it comes to unsecured credit such as unsecured credit cards.  A bankruptcy will destroy your credit scores and will most likely plummet your credit scores by at least 100 or more FICO points.  The good news is that the credit score drop from the bankruptcy is a temporary drop and over time, your bankruptcy on your credit report will have less and less impact on your credit scores.  It is like having a major hangover.  Over time, the alcohol in your body disappears and your hangover will be soon over.  That is the case with a bankruptcy.  Even if you get no credit whatsoever, your credit scores will slowly creep up.  However, if you add positive credit and start re-establishing your credit after bankruptcy, your credit scores will improve way faster than ever.  There are cases where a person who filed bankruptcy has credit scores over 700 FICO in just over a year because they have re-established their credit scores.

Secured Credit Cards To Rebuild Credit

You can get credit after bankruptcy.  You cannot get a unsecured credit card but the best way of re-establishing your credit after bankruptcy is by getting secured credit cards.  Secured credit cards are the savior for people who have just gotten their bankruptcy discharged.  Each secured credit card can boost a person’s credit scores by at least 20 or more FICO points right after a bankruptcy discharge.  The ideal amount of secured credit cards a person should get is 3 secured credit cards with $500 credit limit.  Use these credit cards regularly and pay them off every month religiously.  As the secured credit card payment history ages over time, your credit scores will improve greatly and the chances are that the secured credit card company will offer you a credit line increase without having to put any additional deposit on your secured credit card account.

The thing is that you can get credit after bankruptcy.  Bankruptcy is a federal law that protects a consumer against creditors and gives the consumer a second chance to start their financial life over again without the need to worry about judgments, wage garnishments, and bank account garnishments.  A person who files for bankruptcy and has their bankruptcy discharged is a debt free person where they no longer have to worry about owing anyone anything.

Bankruptcy Is Viewed Favorably By Lenders And Creditors

Many creditors view a person with a bankruptcy more favorably than borrowers without a bankruptcy but many outstanding collection accounts.  Once a person files for bankruptcy and has had their bankruptcy discharged, they no longer have to worry about an old creditor coming after them to garnish their wages, place liens on their assets, or having a judgment against them.  Once you file bankruptcy, you cannot file another bankruptcy for at least 7 years from the discharge date.  People who recently had a bankruptcy discharged often can qualify for a car loan and other forms of credit.  Granted, a person who has a recent bankruptcy will most likely get a higher interest rate than a person who has not had a bankruptcy.

Can I Qualify For A Home Loan After A Bankruptcy?

The answer to the above question is yes.  However, there are mandatory waiting period after a bankruptcy discharge in order to qualify for a residential mortgage loan.  Both HUD and Fannie Mae have their own mortgage lending guidelines in qualification requirements for a mortgage loan after a person has filed bankruptcy.

There is a 2 year mandatory waiting period to qualify for a FHA loan after the discharge date of the bankruptcy.  Mortgage lenders also want to see re-established credit after bankruptcy and no late payments after a bankruptcy.

There is a 4 year mandatory waiting period to qualify for a conventional loan after a bankruptcy.  Mortgage lenders also want to see re-established credit and no late payments after the person has had a bankruptcy discharge.

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