If you have a recent bankruptcy, it's a pretty sure deal your credit scores have dropped quite a bit. Though time will gradually cancel out much of the damage, it's still critical that you begin working on cleaning up any remaining credit issues and reestablish a good payment history to get your credit rebuilt as quickly as possible. The following are a few simple steps that can help you rebuild your credit more quickly and make it easier to qualify for a mortgage in the future.
1) Make all your payments on time without fail. This is hopefully an obvious one, but it's still worth a mention because its so important. Banks will be looking for evidence that you've developed good payment habits since the bankruptcy. If you've missed even a single payment, it could make it impossible to qualify for a new mortgage even if your credit is otherwise in good shape. Make sure you send in all payments on time.
2) Open a secured credit card. If you've recently gone through bankruptcy, you probably have few credit accounts open and lenders probably won't want to lend to you. Secured credit cards are a great way to reestablish credit because they're backed by your own cash on deposit with the credit card issuer. They're pretty easy to get and usually can be obtained right away after bankruptcy.
3) Check your report on a regular basis and clear up any errors right away. Federal law entitles you to a free credit report annually from AnnualCreditReport.com, but it's a good idea to check on a more regular basis. Be sure you get your credit report from all three major reporting agencies: TransUnion, Equifax, and Experian. If you find errors, contact the credit bureau reporting the erroneous tradeline to get it cleared up right away.
4) Clear up any collections and charge offs. Even if all your debt was wiped out in the bankruptcy, it's not uncommon for derogatory accounts to hang around long afterwards in the form of collections and charge offs. Even if very little is owed, they can still damage your credit scores and make it tough to get a mortgage. You often can negotiate the balances for pennies on the dollar, but be sure to get any agreement in writing before sending in the payment.
5) Keep revolving accounts like credit cards under 30% of the limit. The credit bureaus downgrade your scores hard if you have a high balance-to-limit ratio on revolving accounts because it makes you look "maxed out" - even if you have a perfect payment history. Keep your balances below 30% of the outstanding limits at all times.
6) Check if your HELOC is reporting as a mortgage debt. If your home equity line of credit is reporting as a revolving account and you owe a lot on it, it could hurt your scores for the reason mentioned in the previous point.
7) Keep open a few older credit cards. If you still have a few old credit card accounts, keep them open and use them occasionally. The reporting agencies like to see long credit histories, so don't damage your scores by needlessly getting rid of old accounts.
8) Avoid cosigning. Trying to cosign is probably pointless if you have a recent bankruptcy, but down the road when your credit starts getting better, avoid cosigning. All your hard work rebuilding your credit could be gone in an instant if the person you cosigned for fails to make their payments. And because you're legally obligated on the debt, the lender could come after you for any balance owed.
Note that any derogatory items such as collections and charge-offs will stick around for 7 years after they are first posted even if they have a zero balance. However, as time goes on, the impact of the derogatory items will lessen significantly. Bankruptcies will stay on your record for 10 years.
We also want to note the importance of living well within your means as you rebuild your credit. Sure, you need to use debt to rebuild your payment history, but use it wisely. Don't borrow unless you really need to, and don't borrow any more than you can repay easily and in a short period of time.
These tips will go a long way toward helping you rebuild your credit, but understand that it takes time. There's no quick fix, but with a little time and effort, you can get your scores back to where they need to be and more easily qualify for a great mortgage loan.
1) Make all your payments on time without fail. This is hopefully an obvious one, but it's still worth a mention because its so important. Banks will be looking for evidence that you've developed good payment habits since the bankruptcy. If you've missed even a single payment, it could make it impossible to qualify for a new mortgage even if your credit is otherwise in good shape. Make sure you send in all payments on time.
2) Open a secured credit card. If you've recently gone through bankruptcy, you probably have few credit accounts open and lenders probably won't want to lend to you. Secured credit cards are a great way to reestablish credit because they're backed by your own cash on deposit with the credit card issuer. They're pretty easy to get and usually can be obtained right away after bankruptcy.
3) Check your report on a regular basis and clear up any errors right away. Federal law entitles you to a free credit report annually from AnnualCreditReport.com, but it's a good idea to check on a more regular basis. Be sure you get your credit report from all three major reporting agencies: TransUnion, Equifax, and Experian. If you find errors, contact the credit bureau reporting the erroneous tradeline to get it cleared up right away.
4) Clear up any collections and charge offs. Even if all your debt was wiped out in the bankruptcy, it's not uncommon for derogatory accounts to hang around long afterwards in the form of collections and charge offs. Even if very little is owed, they can still damage your credit scores and make it tough to get a mortgage. You often can negotiate the balances for pennies on the dollar, but be sure to get any agreement in writing before sending in the payment.
5) Keep revolving accounts like credit cards under 30% of the limit. The credit bureaus downgrade your scores hard if you have a high balance-to-limit ratio on revolving accounts because it makes you look "maxed out" - even if you have a perfect payment history. Keep your balances below 30% of the outstanding limits at all times.
6) Check if your HELOC is reporting as a mortgage debt. If your home equity line of credit is reporting as a revolving account and you owe a lot on it, it could hurt your scores for the reason mentioned in the previous point.
7) Keep open a few older credit cards. If you still have a few old credit card accounts, keep them open and use them occasionally. The reporting agencies like to see long credit histories, so don't damage your scores by needlessly getting rid of old accounts.
8) Avoid cosigning. Trying to cosign is probably pointless if you have a recent bankruptcy, but down the road when your credit starts getting better, avoid cosigning. All your hard work rebuilding your credit could be gone in an instant if the person you cosigned for fails to make their payments. And because you're legally obligated on the debt, the lender could come after you for any balance owed.
Note that any derogatory items such as collections and charge-offs will stick around for 7 years after they are first posted even if they have a zero balance. However, as time goes on, the impact of the derogatory items will lessen significantly. Bankruptcies will stay on your record for 10 years.
We also want to note the importance of living well within your means as you rebuild your credit. Sure, you need to use debt to rebuild your payment history, but use it wisely. Don't borrow unless you really need to, and don't borrow any more than you can repay easily and in a short period of time.
These tips will go a long way toward helping you rebuild your credit, but understand that it takes time. There's no quick fix, but with a little time and effort, you can get your scores back to where they need to be and more easily qualify for a great mortgage loan.
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