Posted: Mon Dec 05, 2005 2:28 am Post subject: How to recover yourself after bankruptcy?
A bankruptcy relieves you from debt troubles but at the same time lowers your credit score. You may feel exhausted and ruined after having declared bankruptcy. But this is not the end. You should look out for ways to enhance your credit score; it will help you get secured as well as unsecured loans and that too, at reasonable rates.
Make use of the following solutions to get out of debt and build up good credit.
Organize personal finance:
Plan out your monthly expenses by considering your income. Assign a priority to each such expense and then proceed. You can also set up an emergency fund so that even if you lose a job or come across any financial problem, you can continue making necessary payments.
Increase your savings:
Create a savings account and withdraw cash only when required. Purchase only the most essential items and leave out the unnecessary ones for the moment.
Pay down your bills in time:
You may lose hope after a bankruptcy since you are in financial distress - you find it hard of pay off bills, and you won't be getting credit cards or loans in a short time. After all, bankruptcy has an adverse effect on your credit score. But if you can acquire good credit habits such as paying the bills on time, using only a part of the available credit and not taking too much credit at once, then it becomes easier to build up an impressive credit profile.
Check your credit report frequently:
You should inform the reporting agencies if you have declared bankruptcy. You also need to monitor your credit report from time to time to ensure that it is free from incorrect information. Let the agencies know in detail about your past payments. You should also be checking it with your creditors as to whether they are regularly passing on such information to the reporting agencies.
Build up a good credit score by using credit:
A bankruptcy may prevent you from further loan applications but you need to take some amount of credit, so that you can develop good credit. You can get an installment loan like student loan, auto loan or any mortgage. Or else, you can seek a revolving line of credit such as credit cards or a line of credit. But getting an unsecured card may be difficult. So you can at best apply for a secured credit card and then get it converted to an unsecured card.
Shop around for the lowest rates and fees when you are looking for a secured card. You will perhaps get a card with a maximum limit equal to the amount you have deposited in the bank. The bank in turn holds your money and when you close your account, the deposit is returned back to you. Use the secured card for six months or a year with regular payments so that you can convert it into an unsecured card. But avoid applying for too many cards at a time, otherwise it will again lead to bad credit. Also, try not use the entire credit limit as it affects your score.
You may also build up credit if you can get a line of credit. Check out if your bank will allow setting up a line of credit and securing the loan with your savings account. But for this, you also require to deposit sufficient amount in the savings account so that you can pay the bank.
You can also increase your credit score by taking a mortgage loan, although it is hard to get one after bankruptcy. Lenders may offer you a high rate loan, also known as subprime loan, at least 6 months after bankruptcy. You can use a subprime loan for a short span of time, say 3 to 4 years, clean up your credit report and then refinance at a low rate.
Lenders may offer you an FHA approved mortgage at least 2 years after bankruptcy but for that, you must be regular on your payments. FHA loans generally charge interest rates that are half a percentage point higher than regular mortgage rates. But go for a mortgage only when you are confident of affording a home.
You may also consider an auto loan to build up good credit. But then, be prepared to pay higher interests. Even if you take an auto loan, choose one which does not have a prepayment penalty. Then refinance the loan at a lower rate in order to pay it off. This will at least help you in credit repair.
Keep away from frauds: Stay away from credit repair agencies or anyone who wishes to fix up your credit after bankruptcy. Re-establishing good credit may be tough but not impossible. You can do it yourself. Just be careful before paying anyone for such services.
Even after you have gone through bankruptcy, have patience and sort out which of the above ways can offer some relief. The key to recover from bankruptcy is to restore your financial status and credit profile. All you need to do is to organize your plans for credit repair and move on accordingly.
Last edited by Jessica on Mon Dec 05, 2005 9:15 pm
Posted: Mon Dec 05, 2005 2:50 am Post subject: RE:
Hi,
Those are very good and important tips Jessica. I just want to add one point.
Consumers should keep away from the companies that say that they will get them out of debt in 30 days. These shortcuts will lead you nowhere but instead push them in more trouble.
Thanks,
Jerry
Jill Guest
Posted: Mon Dec 05, 2005 3:49 am Post subject:
Hi all,
Yes, you are right jerry, as nowadays there are lots of companies which make promises to get people out of debt in a short time. Consumers should understand that these types of companies are misleading them. Getting out of debt is not a short process. It takes a couple of years to get out of debt, that too if you have planned your budget properly and are meeting your bills on time.
Jessica
