Credit Crunch: What Happens After Bankruptcy
Life after bankruptcy can be tough, both psychologically and economically. Getting a major credit card, renting a car, even booking hotel rooms and airline tickets can be difficult, if not impossible. While bankruptcy gives one a chance to start over, it definitely is not a panacea.
The best way to rebuild or obtain new credit is to see that positive information is put into your credit file. Begin by getting a copy of your credit report and make sure all information is positive. Negative information older than seven years, other than your bankruptcy filing, should not be there. And, bankruptcies older than 10 years, or not identified by the specific chapter of the bankruptcy code, should not be there.
Ask the credit bureau to add your current employer's name and address, your job title, previous employer, telephone number, date of birth, Social Security number, bank and savings account number. All these show stability. Credit bureaus are not required to add this information, but they generally will.
If you kept a bank card or gasoline or department store card during bankruptcy, start using it again. Charge a small item every month, and pay the bill in full and on time.
If you don't have a leftover credit card, you will probably have trouble getting a major card. However, department store or gasoline cards are easier to get. Or, you can apply for a secured card. With a secured card, you deposit money in a bank account and then receive a credit card with a limit based on a percentage of the amount deposited. If you don't pay your bill, the bank uses the money in your account to pay what you owe.
Secured cards can be expensive as many come with application and processing fees plus an annual fee that can be close to $100 or more, so shop carefully. Try to get one with a conversion option that lets you convert the card into a regular credit card after a certain amount of time.
Or, get a bank or credit union passbook savings loan, again, you deposit money into a savings account, and in return, the bank makes you a loan.
However, before getting either a secured card or a bank loan, make certain your history of payment will be reported to one of the three major credit bureaus. You want a record of your on-time payments in your file when you apply for a major credit card or a mortgage.
1) Talk with local merchants (who tend to be flexible) about buying an appliance or piece of furniture on credit. Make sure your payments will be reported to the credit bureau.
2) Open both a checking and savings (or money market) account -- they signal creditors that you're trying to build up savings and take care of your bills.
3) Apply for credit after you've lived at the same address for at least 12 months.
4) Apply when you have a job.
One of the most difficult problems for those who have gone through bankruptcy is renting an apartment or house. Some strategies: 1) Rent with friends. Your name should be on the lease, and you should write checks directly to the landlord for your portion of the rent. 2) Be prepared to pay several months' rent up front and in cash. 3) Find someone who will co-sign the lease with you.
You can boost your ability to get a mortgage or loan if you can show that you declared bankruptcy because of an unusual situation, not just because you went on a longtime, over-the-top spending spree. Explain if your situation was due to divorce, illness, loss of a job, new child support obligations or a family problem.
You may also want to work with a reliable mortgage broker. These professionals deal with a number of different lenders on a regular basis and know which ones are flexible and which ones don't shy away from those who've declared bankruptcy. Offer to make a larger-than-required down payment, and look for a seller who will give you a mortgage.
Bottom line: Don't give up. As time goes by, you will have less and less trouble getting credit. And, once you do, take great care to use it carefully.
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