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Reviving credit after bankruptcy

Filing offers chance to rebuild a financial life

March 10, 2008

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Here's how to rebuild your credit after a bankruptcy:

¢ Develop a spending plan so that you can keep track of where your money's going.

¢ Trim your spending.

¢ Use credit as little as possible. Pay it off quickly.

¢ Use a secured credit card; it's one of the best ways to rebuild your credit and still keep yourself in line. A secured card requires a cash collateral deposit, which becomes the credit line for that account. For example, if you deposit $500 in the account, your credit line is $500.

¢ Obtain copies of your credit reports and make sure no incorrect information is listed.

¢ Be disciplined with your checking and savings accounts.

- The Dallas Morning News

There is life after bankruptcy, even though your credit is shot.

In fact, many creditors view you as a prime customer after bankruptcy because you're getting a fresh financial start.

But don't be fooled. You still have to rebuild your credit, and it will take time, some hard work and major changes in your lifestyle to do it right.

"It's coming to terms with living within your means," said John Ventura, a bankruptcy attorney and author of "The Credit Repair Handbook."

"Living within your means is spending less money than you bring in, and you don't obligate yourself for more than you can really afford to pay," said Ventura. "You don't carry a lot of credit; you save."

If you're coming out of bankruptcy, make it an opportunity to reinvent your financial life.

Make rebuilding your credit a priority because, like it or not, your credit history is seen by the business world as a reflection of your character.

Companies that insure cars and homes are checking your credit to see how great a risk you are and set your premiums according to that level. They argue that a poor credit record is a predictor of how many claims you will file and an indicator of personal responsibility.

Many employers - particularly those hiring for sensitive financial positions - will check your credit before hiring you.

Pinpoint the cause

After a bankruptcy, figure out how you got into financial trouble in the first place.

Was it simply that you didn't live within your means? Or was it something beyond your control, like losing your job or suffering a serious illness?

"It doesn't matter what the crisis is," said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas. "It was their inability to cope with the unplanned that threw them into a financial crisis."

First, develop a spending plan to track your spending, so you know where your dollars are going. To make saving easier, sign up for automatic saving, where you have a fixed amount automatically deposited in your savings account each month.

Make sure that you pay all your bills on time, not just credit cards. Utilities, landlords and cable companies are also creditors.

Use consumer credit as little as possible and only as a last resort. This doesn't include a mortgage or perhaps a car loan.

Don't be surprised if after bankruptcy you're inundated with credit offers because creditors know that you're starting with a clean slate, and they're eager to get you back into the credit world.

Don't be tempted.

Of course, in today's credit-driven society, it's hard not to have a credit card. You need one to rent a car and reserve a hotel room.

One way to re-establish your credit is by obtaining what's called a secured credit card. A secured card requires a cash collateral deposit that becomes the credit line for that account.

For example, if you put $500 in the account, you can charge up to $500. You may be able to add to the deposit to add more credit, or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits.

But before applying for a secured card, ask these questions:

¢ What kind of charges will there be? Look for a card that doesn't charge an application fee.

¢ How much money do you have to deposit?

¢ Does the card issuer report your credit history to the credit bureaus? That's important because you want a solid record of on-time payments.

Check your reports

You're entitled to a free copy of your credit report once every 12 months from each of the three national credit bureaus - Experian, Equifax and TransUnion.

Under those circumstances, if you dispute an item on your credit report, the credit bureau has to complete its investigation in no later than 45 days.

The length of the dispute process is different if you've been denied credit and dispute an item in your report. In that case, credit bureaus must investigate the disputed items within 30 days unless they consider your dispute "frivolous," according to the Federal Trade Commission.

The 30-day period may be extended by 15 days if the credit bureau receives information that's relevant to its investigation.

Make sure there aren't accounts that don't belong to you and that accounts you've closed aren't being reported as open.

Check to see that all loans that have been paid in full are noted as such on your credit reports and show that they are no longer open credit lines.

"After a bankruptcy, wait about two months after receiving your discharge before contacting the agencies (credit bureaus) to give them a chance to update your information," said Carolyn Chesnutt, an Addison, Texas, bankruptcy attorney.

Write a letter to each credit bureau and include copies of court documents showing that your debts were discharged in the bankruptcy.

Ask the credit bureau to update your credit report to reflect the discharge information.

"Most bankruptcies are allowed to be reported on your credit report up to 10 years, but you can still re-establish and strengthen your credit rating by careful, diligent actions," Chesnutt said.

You have the right to include a paragraph in your credit report explaining the circumstances that led to your bankruptcy.

"This is a good idea," Chesnutt said, "as it will show potential lenders that you are not really a criminal or a deadbeat, but a responsible and hardworking individual who suffered an unavoidable economic setback."

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