Tips for Rebuilding Your Credit After Minnesota Bankruptcy

Yes, a bankruptcy can stay on your credit report for up to 10 years. However, there are ways at rebuilding your credit after bankruptcy and improving your credit score. It takes patience and persistence, but it is not impossible.

Getting credit after bankruptcy is difficult at first. Initially, most banks and lenders will consider you a subprime borrower, making credit more expensive. Subprime borrowers are a higher risk and therefore pay higher interest rates and penalties. Nonetheless, a bankruptcy drastically improves your debt-to-income ratio, and Chapter 7 guarantees lenders you will not file bankruptcy for at least 8 years.

The key to rebuilding your credit after bankruptcy is not trying to borrow too much, too quickly. Additionally, you must make regular, on-time payments every month to improve your credit history and receive loans with better terms. In the mean time, use your bankruptcy as an opportunity to build your savings.

However, keep an eye out for credit repair scams. The U.S. Federal Trade Commission states, “Companies promising a ‘new credit identity’ say they can help you hide bad credit history or bankruptcy for a fee. If you pay them, these companies will provide you with a nine-digit number that looks like a Social Security number.” “The credit repair companies may tell you to apply for credit using the CPN or EIN, rather than your own Social Security number. And they may lie and tell you that this process is legal. But it’s a scam. These companies may be selling stolen Social Security numbers, often those taken from children. By using a stolen number as your own, the con artists will have involved you in identity theft.”

Open A Bank Account – Having a bank account is a sign of financial stability. It is also an opportunity to practice good financial habits. Make a goal to place 10 percent of your income into a savings account. Also, consider setting up automatic bill pay to make sure your bills are always paid on time.

Secured Credit Card – A secured credit card is one guaranteed with a savings account or other financial product. If a bank gives you (as an example) a credit card with a $1,000 limit, you deposit $1,000 for them to hold as security. A good history of making payments on time allows you to increase your limit or convert to an unsecured card.

Retail Credit Card – Retail and department store credit cards often have lower standards and you may qualify after a bankruptcy. Your good history can then qualify you for unsecured credit and a bank issued card. Small purchases and timely payments are all you need.

Secured Loans – Similar to a secured credit card, a bank agrees to lend you money by holding a deposit of equal value. Improving your credit score requires using different types of credit. Cards are revolving credit that allows you to charge more as you pay down the balance. Loans are typically fixed.

Payoff Early – Get in the habit of paying more than the minimum payment on credit cards and getting ahead of payments on loans. Your payment history is the prime driver of your credit score. However, make sure you have 6 months of history before paying off loan balances.

Unsecured Credit – After using secured credit for at least a year, you can start applying for unsecured credit. Your best chances are with the banks and financial institutions you have created relationships. If you have a secured credit card with a bank, ask them for an unsecured loan.

Monitor Credit – You are doing all the work to rebuild your credit; monitor your credit report to make sure reporting errors are not sabotaging your score. Those accounts included in your bankruptcy should be reported as such, and the new accounts need to be correct.

The important thing to remember is that patience and persistence are key. A bankruptcy affects your credit for 10 years. However, the sooner you start working on it, the sooner you will bounce back. If you would like more tips for rebuilding your credit after bankruptcy, or need more information, please contact us.