How to Re-Establish Credit After Bankruptcy
It's easier to get a mortgage after bankruptcy if you re-establish credit right away.
- Apply for a secured credit card or a “second chance” credit card
- Take out a small personal loan
- Charge small amounts and pay your bills on time every month
- Ask a friend or relative with good credit to add you as an authorized user to one or more accounts.
It takes time and effort to re-establish credit after a bankruptcy so that you can buy a home. You can use the mandatory waiting periods most mainstream lenders require to improve your credit history and scores.
Do not spend money on credit repair. Whatever a credit repair company can be done by yourself. Derogatory credit tradelines included in your bankruptcy will all report a zero balance and has no impact on your credit scores. New creditors do not care about derogatory credit tradelines prior to your bankruptcy filing.
Special Mortgages for Bankruptcy or Foreclosure
Homebuyers can definitely qualify for a mortgage after bankruptcy. Gustan Cho Associates has mortgage loan programs that can finance you one day out of bankruptcy or foreclosure. These non-prime (aka non-QM) loans require a 30% down payment. You can’t have any late payments after your bankruptcy and re-establishing credit can improve your chances of loan approval.
Bankruptcy and/or housing events like foreclosures or short sales can drop credit scores by more than 100 points.
However, the great news is the drop is temporary. As the bankruptcy and/or housing event ages, the credit scores will naturally increase. That is, if you re-establish credit. Gustan Cho Associates has helped countless borrowers get credit scores over 700 in less than one year after bankruptcy discharge.
Credit Cards Help Re-Establish Credit After Bankruptcy
Credit cards are the fastest tools and easiest to re-establish credit and boost credit scores after bankruptcy and/or housing event. Many consumers are often confused about how they can get credit cards to re-establish and increase credit scores after bankruptcy and/or a housing event if their scores just tanked.
We will explain about how to re-establish and increase credit scores after bankruptcy and/or foreclosure with secured credit cards.
How To Get Credit Cards After Bankruptcy
Many who file bankruptcy often swear they will never obtain credit again after their bankruptcy discharge. Unfortunately, not having established credit hurt consumers.
Do not go crazy applying for a bunch of unsecured credit cards and/or other forms of credit after your bankruptcy discharge. You will not get approved for unsecured credit right after a recent discharge.
The sooner you get new credit after a bankruptcy discharge, the sooner you will on the road to re-establishing your credit and maximize your credit scores.
Secured Credit Cards
Secured credit cards require you to leave an amount on deposit with the card issuer. That deposit is usually your credit limit.
Only apply for cards from companies that report your payment history to the three big credit bureaus — Experian, TransUnion and Equifax. And read the fine print because these cards can have some really nasty fees buried in there. Fees can include activation charges, set-up fees, maintenance charges, and more. Compare several and pick one with low out-of-pocket costs.
Once you have a good payment history with a secured card, apply for one or more regular credit cards. You can also contact the secured card issuer — some secured cards convert to regular cards after you make on-time payments for a few months if you ask. And you get your deposit back.
Installment loans give you a lump sum and you pay it back in monthly installments. Your interest rate is usually fixed.
Once you have begun to re-establish good credit, apply for a small personal loan. The interest rate will likely be pretty high, but installment accounts carry more weight with credit bureaus and paying one off can impact your credit score more than paying a credit card account.
In addition, adding an installment loan improves your mix of credit types (10 percent of your FICO score).
Installment loan rates can range from0% to 36% or higher for fair credit loans from peer-to-peer sites.
Authorized User Accounts
Another way to get good credit history is to become an authorized user on someone else’s account. The account history attaches to your credit report and helps you rebuild your score.
Make sure that the accountholder has good credit and makes the payment on time (within 30 days of the due date). If he or she pays late, that shows up on your credit report and hurts your score..
Don’t abuse the accountholder’s trust. Do not use the account. It’s probably better if you don’t even know what the account number is.
How Long Does It Take To Re-establish Credit After Bankruptcy?
It takes at least six to 12 months to re-establish credit after bankruptcy. Creditors and lenders will also look at the length of your credit. As your new credit age, the stronger your credit profile will be.
Secured credit cards is the best tool to re-establish credit after bankruptcy. The ideal amount of secured credit cards you should get is three.
Three secured credit cards with at least a $500 credit limit will do wonders and will be your road to a strong credit profile and high credit scores. It is not impossible to get your credit scores over 700 FICO after six to 12 months after a bankruptcy discharge.