5 STEPS TO IMPROVE YOUR CREDIT SCORE AFTER BANKRUPTCY AND MAINTAIN THE HIGH SCORE FOR LIFE
by David L. Ruben, Esquire
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Thank you for visiting us at the Law Offices of David L. Ruben and the Maryland Bankruptcy Center. You are considering filing bankruptcy because you are overwhelmed with debt and in need of serious financial relief. Bankruptcy law provides the most effective, efficient and affordable way to get your financial life under control and give you a fresh start. We are excited and pleased that you are considering our firm to help you end the sleepless nights and help you get back on your feet.
But, eliminating your debt is only half the battle.
In doing this for more than 22 years, we have realized that the main reason people do not want to file bankruptcy is because they think they will not be able to ever, or at least for 10 years, get credit again after filing bankruptcy. The good news for you is that this information is simply not true. In fact, there are ways to improve your credit score after bankruptcy to the point where your credit score can be over 700 within two years after filing, sometimes even sooner than that. So, we have put together a guide to help you rebuild your credit after bankruptcy. It is not foolproof and it is not guaranteed, but, based on what our former clients have told us, what literally hundreds of internet articles by highly reputable people have said, and finally, what common sense has taught us, we have every reason to believe that if you take the right steps, you will rebuild your credit shortly after filing bankruptcy.
After you receive your bankruptcy discharge, find out your credit score. That way you have a base line and you will know how much you have improved over time. You can get your credit score by downloading a free app on your phone called credit karma or you can request a free credit report online. Whatever you do, do not pay for it. There are ways to pay for your credit score and sometimes that score can be more accurate, but I wouldn’t suggest doing that. Whatever your free credit score says, if it goes up, you are on the right track.
When I meet with people the first time they are often ashamed of their situation and say to me “I never want to get credit again.” I understand why people would say that, but it’s absolutely the wrong attitude. Credit cards are taken everywhere these days and are often necessary just to buy or rent certain items. It is a fact that the credit bureaus base your credit score on open credit. Having no credit is not a good thing, your credit score will not improve without getting some type of credit. Just like when you were 21 , your credit score started low and then as you got older, and obtained more credit, your credit score improved. Now is much the same. It is recommended that you apply for secured credit cards as soon as you possibly can after receiving your bankruptcy discharge. Go online and look for secured credit cards and find what looks good to you and apply. Pay them on time every month. We have also learned that for a maximum credit score it is good to have between 3 and 5 credit cards. This applies whether the card is secured or unsecured. The credit bureaus see more than five cards as a bad thing. One or two is fine, but three to five seems to be the best. Again, the most important part is making the payments on time every month.
HELPFUL HINT: DO NOT APPLY FOR OR USE DEPARTMENT STORE CREDIT CARDS, APPARENTLY THEY ARE TERRIBLE FOR YOUR CREDIT SCORE
Use the 30% rule. This is slightly complicated, but it is very helpful information to know. As indicated above, the credit bureaus like when you have credit, but not too much credit. Remember, it is okay to have a balance as long as you make your payment on time each month. If you are going to have an open balance on your credit card, however, make sure you do not have an open balance of more than 30% of the credit limit. For example, if the credit limit on your card is $1000, you do not want to have an outstanding balance of more than $300. If you do, that is a bad thing for your credit score. So, if you have five credit cards with $1000 limits, for example, you are much better off having a $300 balance on five of them ($1500 total balance) than having one card with a $1000 balance (maxed out) and another with a $500 balance (more than 30%). The amount of debt is the same, but the credit bureaus view it differently.
Make sure your credit report is accurate. After you receive your discharge, get a copy of your credit report. You are probably entitled to a free one, but if not, it’s worth it to pay a few dollars for one. Check it carefully to make sure that everything is accurate. One place where credit bureaus make mistakes, but we don’t’ realize it, is on your credit limits. Make sure they are correct. Remember the 30% rule from Step 3? That is why it is so important. If you find an error on your credit report you need to contact the credit reporting agency and report it. They all have websites, and here are their phone numbers:
EQUIFAX – (800) 685-1111;
EXPERIAN – (888) 397-3742;
TRANSUNION – (800) 888-4213.
Just like credit cards, apply for installment loans. If you need a car, go out and try and buy a car. Not an expensive car, just one that runs and that you can afford. Many car dealerships will offer people car loans immediately after filing bankruptcy. Yes, you might pay a higher interest rate, but if you buy an inexpensive car, the difference will be minimal. And, after you have paid the loan on time every month for 6 months to a year, you will see that your credit score will have already shot up. At that point, you can attempt to refinance the loan and reduce your interest rate in order to save some money. Step 5 also incorporates refinancing. If you already have a home or a car, you should attempt to refinance about six months after receiving your discharge. See what happens, you have nothing to lose. If you are denied, find out why you are denied and you will probably find out what you need to do at that point to improve your credit score. Aside from the ways listed above, that is a great way to help yourself improve. Then, try to refinance again after 3 months. The worst that can happen is that they say no.
MAINTAIN YOUR HIGH CREDIT SCORE FOR LIFE
Okay, so now you have learned how to improve your credit score quickly after a bankruptcy discharge. But do we want to see you in 8 years to file again? Not really. We would rather you maintain good credit and be so happy with our service that if you or anyone that you know every needs a great law firm, you call us.
Here are some things that you can do to keep your good credit score in the future.
- Set up automatic payments for as many of your bills as you can.
- Make sure you pay all of your outstanding bills at least every two weeks. If you don’t have automatic payment, the safest thing to do is pay your bill as soon as it comes in. It’s not easy, but it’s great for
your credit score if you can make it happen.
- Review your credit card statements and bank statements carefully each month.
- Review your monthly budget and get a copy of your credit score every six months. It’s just a really good thing to do.
- Finally, make sure you get that free credit report every year. Review it carefully, make sure it is accurate. If it is not, do what you need to do to fix it. Again, not easy, but well worth it.
Once again, thank you for considering us to handle your bankruptcy case.
We pride ourselves in customer service, not just now, but for years to come.
David L. Ruben, Esquire
“FILE TODAY ………………… SMILE TOMORROW”
David L. Ruben, Esquire
Law Offices of David L. Ruben, P.A.
7310 Ritchie Highway, Suite 704
Glen Burnie, MD 21061
UNSURE IF BANKRUPTCY IS RIGHT FOR YOU?
If you are concerned about the soon-to-expire foreclosure moratorium, contact Sirody & Ruben Bankruptcy Center. Our experienced attorneys will review your financial profile and make recommendations based on your individual goals.