Credit After Bankruptcy
Generally, after discharge, most banks do not allow debtors to open commercial checking accounts or receive mortgages for a period of two years. After two years, most mortgage companies do offer credit after bankruptcy and do not assign significant penalties to the discharge. The rational seems to be that 2 years is adequate to prove prior problems are no longer relevant, and current credit history is a much more accurate assessment of financial health. The size of your down payment, security offered, and recent payment history are the most important factors to obtain credit after bankruptcy. See also:
How to improve credit after bankruptcy
Beauty is often found in simplicity when applying for credit after bankruptcy. One of the most successful plans is also within grasp of all debtors following a discharge. To begin, consider the following:
- Make your investment deposit first, each month, by either direct pay from your paycheck or automatic withdraw from your checking account. Save at least 5% and budget your month the best you can.
- Your investment account should earn interest.
- Consider your next raise a bonus, earmarked for savings.
- Consider adding a part-time job, perhaps evenings, or perhaps weekends only.
Overtime, small monthly savings multiply and quickly justify a more sophisticated approach. Many investment options offer significantly higher rates of return than simple savings accounts. Find them. While your savings grow, also begin re-establishing your credit score. Each year after discharge, less weight is assigned to the significance of court ordered relief and more current factors are used to determine your score. To immediately jump-start the process of receiving an excellent credit score, consider the following:
- Talk to a personal banker, loan officer, or your credit union. Explain your situation and desire to obtain credit after bankruptcy. Then offer to provide greater than 100% cash security for a new loan. It's easy, and you can start with as little as $200.
- Open a savings account with your first $200. Offer this account as collateral for a $200 monthly installment loan payable over 1 year. Make sure the lender reports payment history every month.
- When you receive the loan, deposit that money into a second savings account, and request the lender collect monthly payments by automatic withdrawal. Each year, as this loan is repaid in full, set up a new loan, with a different lender, for a higher amount.
- Apply for credit cards. Do not pay high application fees, annual fees, or exorbitant interest rates. Instead, take time to shop, comparing rates, terms and interest. Be sure to charge at least one small transaction every month on each credit card.
- Each month you make timely payments on installment loans and credit cards, your credit score improves and the discharge becomes less important. Over 5 years, if you do not make any late payments, you will have better credit than 85% of the general population.
This simple plan produces elegant results. If you make all payments on time, for 5 years, you will have better credit than 80% of the general population even with a prior discharge reflected on your credit report. And the expense of this plan? No more than $10 a month out-of-pocket.
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