Credit Repair after Bankruptcy

Credit Repair after Bankruptcy

Kentucky Foreclosure Law

You can get credit after you complete your bankruptcy.  After a Chapter 7 bankruptcy you can have credit cards, prime rate mortgages and a personal life. Your credit will repair itself if you pay on time, and correct your credit report after filing bankruptcy.  Life long good credit is made by making loan payments on time after your discharge on whatever loans and credit cards you keep after discharge.  Although we recommend one service, don’t be taken by most of the credit repair and sweeper places.  Even if you only pay rent and utilities, you will normally qualify for normal rate home mortgages two years after discharge and there are possible prime rate home loans and refinancing during a Chapter 13.  Just download our manual and talk to us!

Bankruptcy is not the end of getting credit cards, auto loans, or mortgages — it is the start.  You don’t have to accept high rate loans for autos after you file.  Credit cards, home mortgages, and personal loans are all possible as you repair your credit, but you do have to work on it and we show you how.  Simply look over our site and download our manual and read it to learn how.

How to Improve Your Credit Score after Bankruptcy

Lexington Law is a law firm that will remove your incorrect, outdated, or misleading credit information.   In 2011, the cost was $39 per month and over the course of a year, about as much as can possibly be done will be done to improve your credit.

Your FICO credit score uses 5 factors and a 950 score is possible. Filing bankruptcy will only drop a 500 score about 20 points at first.  By paying on time after bankruptcy scores may increase 100-200 or more points within 2 years.   By paying on time on 3 forms of credit: Home mortgage, car loans and a credit cards, your credit score will rapidly increase.  Applying with or opening credit with buy-here-pay-here car lots and finance companies will actually hurt your score or at least will not rebuild it as well as accounts with banks.   FICO is used by mortgage companies and the major banks the other scores such as Beacon are worthless.   The five FICO factors are:

  • Previous Credit History 35%  (After bankruptcy as you make payments on time your score improves.)
  • High levels of Debt to Income 30%  (After Bankruptcy your debt to income is reduced increasing your score)
  • Limited Credit History 15%
  • New Credit Applications 10%
  • Limited Types of Credit 10%

Prime, Sub-Prime, and Damaged Credit

Prime: If your credit score is above 600, you are considered a “prime borrower” and you have no problem getting mortgages, cars, or credit cards.

Sub-prime: Credit scores below 600 are “sub prime”.   You may have higher interest rates but there are lenders.   This extends down to about 500 the lower your credit score the higher your rates and harder it is to get credit.

Damaged Credit: Credit becomes too expensive to use. You buy on cash. Below 500 is the Damaged Credit Zone. You may get a credit card but at such high fees and uselessly low credit limits that credit is too expensive. Your interest is double the normal rates for prime borrowers.  You pay more for insurance and may be barred from some jobs.   Bankruptcy is often your only way to repair damaged credit.  Old unpaid debts drop off  and as you repay on time, credit is repaired.

How much does a damaged credit score cost you?

Credit Cards: The few credit cards that are available for people with damaged credit have very low credit limits, high fees.  These lenders do not report your good credit activity making it impossible to repair your credit with them.

Automobile Financing: If you have damaged credit the increased interest you pay for auto financing costs even more.

$20,000 car paid over 5 years:

CREDIT STATUS

RATE

PAYMENT

COST OF DAMAGED CREDIT

Prime
Sub-Prime
Damaged

10%
14%
20%

$424.94
$465.37
$529.88

$0.00
$4,722.54
$8,593.30

Home Mortgage: The cost of a home can more than double if you buy a home from a sub-prime lender at higher rates.  Even a very small cheap home will cost between $100,000 and $180,000 more in interest if you are buying a home with damaged credit.  We used actual mortgage rates for 2003 and 2004 to show your costs below:

$100,000 home paid over 30 years:

CREDIT STATUS

RATE

PAYMENT

COST OF DAMAGED CREDIT

Prime
Sub-Prime
Damaged

5%
9%
12%

$450.30
$804.62
$1,028.61

$0.00
$100,310.48
$180,996.87

Fix Your Credit Score

Now that you know how your credit score is calculated and the costs, you can begin to repair your credit score. Here are the 4 things that will help after bankruptcy.

  • 35% of your score: Pay your bills on time and your score will improve over time.

  • 30%: Bankruptcy will dramatically lower your Debt to income ratio.  Keep your balances low on credit cards. Have less than 7 open accounts.

  • 10%: Rarely apply for credit.  Applying for credit often lowers scores.

  • Make sure the information in your credit report is correct. Removing negative items on your credit report has the largest impact on your FICO score. Use our letters in the forms section.

Repairing Credit After Bankruptcy

If you don’t repair bad credit after bankruptcy, it will cost you.  Just 200 points will cost you $300 a month more for your $150,000 dollar home in higher interest rates.  It means the difference in driving a Ford or a Mercedes.

The amount of incorrect information on most credit reports is amazing.  Add the true negative items and it is almost impossible to get good credit after bankruptcy.  Many creditors such as Capitol One and the buy-here-pay-here car lots engage in credit reporting practices that keep your credit scores low.

About the only method to repair your credit reports  is to hire a law firm to clean your record and dispute the inaccurate, incomplete, misleading, unverifiable, and outdated information.  You can write letters yourself. But credit reporting agencies will often ignore your letters since most people fail to document and sue them for unfair practices.

Many credit repair agencies are scams.   Often, they will tell you to get a false ID which isn’t credit repair and isn’t legal.  They are concerned with collecting high fees from you and often charge over $1,000 up front for no results and often shut down within a year.   They lack the muscle of being ability to file a lawsuit against a credit reporting agency.  Due to the high number of scams, the FTC has created special rules to attempt to shut these places down, but the scams still exist.

You are not supposed to be able to repair or remove true credit information, but if a bank fails to validate credit information and confirm that it is true, even true credit information can be permanently removed.  Even bankruptcy and judgment liens have been removed from some credit records by this method.

Lexington Law is a law firm that will repair your incorrect credit report information. The cost in 2011 was $99 to start and $39 per month.   Over the course of a year, about as much as can possibly be done will be done repairing your credit.

www.Annualcreditreport.com has free credit reports, and you shouldn’t pay credit watching fees to obtain the free credit reports.