How to Re-Establish Credit After Bankruptcy

Gustan Cho Associates are mortgage brokers licensed in 48 states
How can you quickly re-establish credit following a bankruptcy?
  • 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.

Prequalify for a bankruptcy mortgage in about five minutes.

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.

Gustan Cho Associates Mortgage Group gets countless calls about mortgages after bankruptcy.

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 

What is the easiest and fastest way to get a credit card after being released from 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.

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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

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?

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.

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Secured Credit Cards

Secured credit cards are VISA, Master Card, and Discover cards that work just like unsecured cards. However, the credit card company will request a deposit that is equivalent to the credit card limit. If you deposit $500 with the credit card company, they will issue a credit card with a $500 limit.

The secured credit card company will report your payment history to the credit bureaus. Minimum payment will be due every month. Secured credit cards act the same way as unsecured cards. On-time and late payments report on all three credit bureaus.

As your secured card ages, you will be developing a strong credit profile and history with both the credit bureaus and the creditor. The credit card company may give you a credit limit increase without asking for an additional deposit if you develop a good payment history.

Please be religious in making your minimum payments on time.

How Creditors and Lenders View Consumers with a Prior Bankruptcy

Lenders and creditors realize consumers who filed bankruptcy cannot file another bankruptcy until 8 years have passed. As long as consumers have proven themselves through re-established credit, creditors are willing to approve them for unsecured credit, auto loans, and/or mortgages.

If your bankruptcy is fresh, then the interest rates will be high. Bankruptcy has no more impact on the interest rate. With mortgages, a prior bankruptcy and/or foreclosure on government and conventional loans do not have an impact on mortgage rates.

Bankruptcy rates have hit historic highs after the 2008 financial crisis. Economists expect bankruptcy rates to soar again due to the coronavirus pandemic economic crisis.

Bankruptcy due to Economic Hardship

Which means bankruptcy due to economic difficulties

Many who fell victim to the 2008 financial crisis filed for bankruptcy, re-established credit, got stable jobs with a steady income, and were able to purchase a home and obtain a mortgage. The 2020 coronavirus economic meltdown may be worse than the 2008 economic crash

Analysts and economists expect bankruptcies and foreclosure to soar in the coming months. Bankruptcy is an option for consumers hurting financially and unemployed. Remember that there is life after bankruptcy.

Secured credit cards are the easiest and fastest way of rebuilding credit and higher credit scores after bankruptcy.

How to Qualify for Mortgage after Bankruptcy

There are mortgage programs where there is no waiting period after the bankruptcy discharged date. FHA and VA have a two-year waiting period after Chapter 7 Bankruptcy discharge. USDA requires a three-year waiting period after Chapter 7 Bankruptcy. VA and FHA allow borrowers to qualify for FHA and/or VA loans during Chapter 13 Bankruptcy repayment plan with trustee approval. However, the borrower needs to be in Chapter 13 Bankruptcy repayment plan for at least 12 months with timely payments.

There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for FHA and VA loans. Fannie Mae and Freddie Mac have a four-year waiting period after the Chapter 7 Bankruptcy discharged date.

The waiting period is two years after the Chapter 13 discharged date. The waiting period is 4-years after the Chapter 13 Bankruptcy dismissal date. Never be late on any monthly payments after bankruptcy. Lenders and creditors frown on borrowers who had late payments after bankruptcy. They often refer borrowers with late payments after bankruptcy as second offenders and want nothing to do with them. Gustan Cho Associates has helped borrowers with late payments after bankruptcy. However, it is not easy approving anyone with late payments after bankruptcy.

Non-QM Mortgages One Day Out of Bankruptcy and Foreclosure

Some folks recover sooner than others after bankruptcy. This is the reason why Gustan Cho Associates offer non-QM mortgages one day out of bankruptcy and foreclosure. The lower the credit of the borrower, the higher the risk for lenders. Non-QM loans one day out of bankruptcy and foreclosure requires a 30% down payment. The longer the bankruptcy has aged, the lower the down payment requirement and lower the rate.