OK, your bankruptcy has been filed. You might have a discharge, or might be on a payment plan. Either way, you need to start RIGHT NOW to build your credit back up. I personally made a mistake.
After my bankruptcy, I waited 2 years to get started on rebuilding my credit. I thought you HAD to wait, and that no one would give you a card, or a car loan, or any other kind of credit. I was wrong.
The truth is that there are 2 primary kinds of credit, and those exist in 2 brackets. Let me explain this a bit.
Loans come in 2 varieties. You can have secured debt, like a car loan or a mortgage, or you can have unsecured debt, such as a credit card or signature loan. When you buy a car, the bank holds the title to the vehicle. If you default on the loan, they get the car back so they can sell it to someone else. For a home mortgage, the mortgage company holds the deed to the property. As long as you have a mortgage, you don’t own a home, you are buying one.
Credit cards are different. When you buy something with a credit card, it is yours. Even if the credit card company tried to come after what you bought, you could have sold it, or thrown it away. And since many people use credit cards for food and gas, it can be pretty hard for your credit card company to come after your digested food. Although you may feel like giving it to them…
But I digress. The question at hand is how to get credit after bankruptcy. We are going to get there in a minute, but first let’s look at how to keep credit during a bankruptcy.
When you declare a bankruptcy, you do NOT have to include all of your debts as part of the filing. You are including the debts you want to get rid of. As an example, when I filed, I had a zero balance Kohl’s card that I didn’t even consider. So, I kept it. Kohl’s left my interest rate and credit limit alone, and I was able to use the card. My Sears card, with a high balance, was closed by Sears. I understand that. They didn’t want someone that wouldn’t pay off their debt to be one of their customers. So, at the end of my bankruptcy, I had a Kohl’s card.
If you have a very low balance card, or a zero balance card that you think you can keep, it would be a great idea to do so. Even if you have a card with a higher balance, it make be a good idea to call the credit card company and see if they will work out a payment plan with you and let you keep the card. They might be willing to do this if you explain the situation.
Now, how about after bankruptcy? Well, you have a couple of options. First, if you have a credit union that you bank with, check there first. They are often lenient and may give you a real credit card. If they do give you one, make sure that they report to all 3 credit bureaus. You want your on-time payments to show up on your credit report.
If that doesn’t work, there are a couple of things to try. First, go to Orchard Bank (http://www.orchardbank.com/) and Household Bank (http://www.householdbank.com/). They deal in the sub-prime debt market, meaning they will take a chance on you. If you have a reasonable income, they might be willing to do business with you. They offer both secured and unsecured cards, so you can try for either.
Which brings us to secured credit. There are really just a couple of kinds of secured credit that you should be interested in at this point. The first is a secured credit card, and the second is a secured loan. The idea behind these credit programs is simple: you put up the money, and the bank takes no risk. Let’s say, as an example, that you choose to open a secured loan. You take $500.00 to the bank, and they open a new, special account for you just for this loan. You deposit your $500.00 in the secured loan account. The bank then ‘loans’ you $500.00! You make regular payments of less than $50.00 per month for a year, and you have paid off your secured loan. If for some reason you default, the bank still has your money. What this does is give the bank a way to earn interest risk free. But, it also allows you to establish credit.
A secured credit card works in much the same way. You deposit your $500.00 in your special account, and the bank gives you a $500.00 line of credit on a card. Then, you can make purchases up to $500.00. You make regular payments, and build your credit. If you default, the bank already has their money, so again this is a no-risk deal for them.
After a period of time, your scores will start to go up with regular payments. But remember, just one negative will crush your score again, so don’t be late!
Jack…
Good Luck…..