Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

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This BLOG On Re-Establishing Credit After Bankruptcy To Qualify For Mortgage Was UPDATED And PUBLISHED On April 12th, 2020

Which means reinstating a bankruptcy loan to qualify for a mortgage

There is a mandatory waiting period after bankruptcy and foreclosure in order to qualify for Home Loans:

  • The waiting period for someone who has a previous bankruptcy is two years from the discharge date of the bankruptcy and not the filing date to qualify for FHA and VA Home Loans
  • However, just passing the waiting period after bankruptcy does not guarantee someone a mortgage loan approval
  • The two-year minimum waiting period after Chapter 7 bankruptcy discharge date is just one of the requirements to be eligible for home loans
  • Mortgage Lenders do not want the mortgage applicant to have any late payments or derogatory credit items after a bankruptcy and have re-established credit after bankruptcy
  • Re-establishing credit after bankruptcy?

In this article, we will discuss and cover Re-Establishing Credit After Bankruptcy To Qualify For Mortgage.

Importance Of Re-Establishing Credit After Bankruptcy

There are so many folks who want nothing to do with credit after bankruptcy discharge.

  • Not re-establishing credit after bankruptcy will hurt people who are planning in buying a home at a later date
  • Consumers should re-establish their credit after bankruptcy discharge as soon as possible
  • Do not do it to use credit but rather to establish credit

The easiest and fastest way of re-establishing credit after bankruptcy and/or housing event is by getting three to five secured credit cards.

Damage To Credit After Bankruptcy

A bankruptcy will drop someone’s credit scores by at least 150 points or more

  • The bad news is that credit is shot but the good news is that the drop in scores is temporary
  • Chances are that no creditor will give a person who just filed bankruptcy and/or had a bankruptcy discharge credit so how can someone re-establish credit after bankruptcy? 
  • The best way to re-establish credit after bankruptcy is by getting secured credit cards
  • People who just got a bankruptcy discharge just assume that they will no longer get credit and give up on re-establishing credit
  • However, this is not the case
  • Consumers can easily get credit scores of over 700 one year after a bankruptcy discharge as long as they play their cards right
  • As soon as consumers get their Chapter 7 bankruptcy discharged, get three to five secured credit cards

Make sure to get a minimum credit limit of $500 for maximum optimization.

Credit After Bankruptcy

What does bankruptcy mean?

Chances are that credit scores will be in the upper 400’s after Chapter 7 bankruptcy discharge is recorded.

  • No worries
  • That low credit score is just temporary
  • Credit scores will most likely go to the mid 500’s even if consumers do nothing about re-establishing credit after bankruptcy
  • However, consumers can get three to five secured credit cards, each secured credit card will boost credit scores by at least 20 or more points
  • It gets even better
  • As credit payment on those secured credit cards ages, credit scores will even get higher
  • Keep using secured credit cards regularly
  • Pay it down so credit balance is not higher than 10% of the credit limit

There is no reason why credit scores would not be in the upper 600’s or lower 700’s one year after Chapter 7 bankruptcy discharge date.

Road To Great Credit With Secured Credit Cards

Secured credit cards are the best tools in re-establishing credit after bankruptcy.

  • Secured credit cards are so important in re-establishing credit after bankruptcy
  • Secured credit card companies will most likely increase credit limit after one year if credit cardholders have a good payment history without requiring to put any additional deposits
  • The way a secured credit card works is the secured credit card company will require credit cardholders to put a deposit with them for a certain amount they choose
  • For example, consumers can get a secured credit card by placing a $500 deposit with the secured credit card institution
  • In return, the secured credit card company will issue a secured credit card with a $500 credit limit
  • There will be a minimum amount due each month

Interest will be charged on balance even though a $500 deposit with the secured credit card institution.

Credit Reporting Agencies

Secured credit card companies will report credit card limit, balance, minimum amount due, and payment history.

  • Cardholders who are late with minimum secured card monthly payments, it will be reported late on all three credit bureaus
  • Credit scores will drop and late payment history will be reported on the credit report
  • A secured credit card is like an unsecured credit card
  • Late payment on a secured credit card is no different than a late payment on a traditional unsecured credit card
  • Card Holders religiously use secured card and make secured card payments timely every month, secured credit card company will most likely give a credit limit increase without requiring an additional deposit
  • After one year seasoning of timely payment history on secured credit cards, cardholders will be eligible to apply for unsecured credit cards
  • They will also be eligible for other unsecured credit such as gas cards, department store cards, furniture store cards, and other credit
  • Remember to always make the minimum credit card payment on time and never be late
  • One late payment on any credit card or creditor can drop credit scores 50 or more points

Late payment history will be on the credit report for a period of 7 years.

Qualifying For Mortgage After Bankruptcy

How to qualify for a mortgage after bankruptcy

Qualifying for a residential mortgage loan after bankruptcy is not difficult.

  • First and foremost, there is a mandatory two year waiting period after Chapter 7 bankruptcy in order to qualify for an FHA and VA Home Loans
  • There is a 4-year waiting period to qualify for a conventional loan after Chapter 7 bankruptcy
  • Lenders want the mortgage borrower to have re-established credit after bankruptcy
  • No late payments after their bankruptcy discharge
  • One or two late payments are not deal killers
  • But habitual late payments, collections, charge offs, and disregard for credit will not fly after bankruptcy

As long as the mortgage applicant has re-established credit after bankruptcy and has passed the mandatory two-year waiting period, they should have no problem in qualifying for FHA and VA Home Loans.

Lender With No Overlays On Home Mortgages

Gustan Cho Associates Mortgage Group has no mortgage overlays on government and conventional loans. Home Buyers with less than perfect credit needing to qualify for a mortgage with a direct lender with no overlays on FHA, VA, USDA, Conventional Loans, please contact us at GCA Mortgage Group at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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