A New Beginning after Bankruptcy: Part II

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In addition to obtaining a revolving account, you also should obtain some type of installment loan in order to rebuild your credit to the best of your ability.

If you have student loans that could not be discharged in bankruptcy, then these can be used to your advantage. Make these installment payments diligently, and pay as much as you can at any time. Reducing this debt that can do great things for your credit score.

A mortgage is another type of installment account that is good for the newly bankrupt. Because they are secured against your home, they are easier to obtain than are other kinds of installment credit. Of course, only commit to such a loan if you will be able to afford your payments.

You may be able to obtain a mortgage as soon as six months after bankruptcy, but such a loan will come with a very high interest rate. You might want to a year or two after filing, at which time you may be eligible for a mortgage with a much lower rate from the Federal Housing Administration.

If a mortgage is not right for you, then an auto loan can help to rebuild your credit. You initially will face very high interest rates, however, so try to find one that does not utilize a prepayment penalty.

Your Credit Report

It is very important to monitor your credit reports after bankruptcy filing. It is rather common for debts that have been discharged to remain listed on reports as open and overdue. If this is the case with your report(s), then you must contact the appropriate credit bureau(s) to insist that your accounts be updated and listed as “included in bankruptcy”.

Bankruptcy will remain on your credit reports for ten years, but do not let this hinder your attempts to improve your credit. You can begin to repair your credit immediately by providing lenders with new credit information that proves your financial responsibility post-bankruptcy. The impact of your bankruptcy will prove less and less as time goes on.

• Now is the time to take up all those good money practices about which you always have heard. Invest in an emergency fund. Stick to a budget. Obtain insurance, especially of the medical variety.

• No matter which types of credit you seek post-bankruptcy, confirm with lenders ahead of time that they will report your account to all three credit bureaus. If they do not, then your accounts will not help to rebuild your credit profile.

• While you must use credit to build credit, do not apply to too may different lenders at once. You do not want to appear desperate for cash. Additionally, too many ‘hard’ inquires into your credit by lenders actually will harm your score.

• You might consider joining a credit union. Because credit unions are owned partially by their members, they may be more concerned with your financial well-being. They also can be a great source for loans once they get to know you personally.

• If it is difficult for you to remember to pay bills, then have them automatically deducted from your bank account. Likewise, if you have your income deposited directly into your account, then you will not be as tempted to spend rather than save.

• The bankruptcy code prevents decimation against you on the basis of your filing status. If you feel that you are being discriminated against, the law is on your side.

Looking to the Future

Once you have filed bankruptcy, you do not want it to happen again. While your credit and credit score have suffered, you have an opportunity to rebuild your finances post-bankruptcy. By responsibly taking on, and consistently paying off, small amounts of revolving and installment credit, you can pave your way toward a bright financial future.

Go to Part I of this article.