Because of the recession, many Americans have filed bankruptcy in recent years. However, once the bankruptcy process has been completed, many people are unsure of how to begin the process of rebuilding credit.
This is understandable. Bankruptcies remain on credit reports for up to 10 years, which can cause your credit score to be low. As lenders rely on your credit score to determine your eligibility for a loan or a mortgage, a low score can make you ineligible for the best rates immediately following a bankruptcy. However, it is possible to rebuild your credit score and improve your chances of qualifying for a loan or mortgage after you have received your discharge.
Check your credit report
Your credit report determines your credit score. Therefore, you want to ensure that it is accurate. One free credit report per year from the three major credit-reporting bureaus can be accessed at annualcreditreport.com. Once you have accessed your credit report, review it for any errors. If you find any, contact the corresponding creditor to correct it.
Make timely bill payments
If you ensure that your bills are paid promptly, it can boost your credit score by as much as 35 percent. Paying your bills on time can also help you when you apply for a loan or mortgage, as lenders typically would like to see consistent payments of bills like rent and utilities for a 12-month period.
A credit card may help
If you can demonstrate that you can use credit wisely, your credit score will improve. Because of this, getting a credit card and paying off the balance in full each month is a good way to boost your credit score. If you decide to get a credit card, be sure to check with the issuer to confirm that your payment history is being reported to the three major credit-reporting bureaus. Otherwise, your diligence with credit will go unnoticed.
Save, save, save
When considering your application for a loan or mortgage, lenders want a down payment and to see a history of savings from you. You can accomplish this by opening a checking and savings account and putting away at least 10 percent of each of your paychecks. Additionally, lenders may ask to see your monthly bank statements in your mortgage application.
An attorney can help
If you take these steps to repair your credit, you may be eligible for a FHA or VA mortgage in as little as one year and conventional mortgages in as little as two. However, the length of time depends on whether you filed a Chapter 7 or Chapter 13 bankruptcy. A Chapter 7 bankruptcy may slightly lengthen the time before you can qualify for a mortgage. (With the ongoing changes in our economy, these time requirements are subject to change.)
When you file for bankruptcy, it may seem that you will never qualify for a loan or mortgage. However, in the majority of cases, this is not true. If you are considering filing for bankruptcy, contact an experienced bankruptcy attorney. An attorney can explain the bankruptcy process, how it will affect your situation and recommend how to proceed based on your circumstances.