Insurance and Credit

How do you build credit after a bankruptcy? A bankruptcy filing will stay on your credit report for 7 to 10 years but it is important to remember that it becomes less important to your overall credit rating as time goes by. As a result, if you demonstrate good credit habits, and demonstrate them early after the filing, your chances of getting the credit you need at rates you can afford greatly increase.

A Fast and relatively easy way to post positive items on your credit report is to obtain a personal loan from your bank. On the surface that sounds like a crazy idea. What bank is going to loan you money just after a bankruptcy. The answer is “most banks” providing you explain what you are trying to do and how the bank is going to benefit.

Now that you no longer have monthly credit card and loan payments, make it a priority to save $1000 as fast as you can. When you’ve reached that cash goal, go to the bank where you have your checking account and ask to see a loan officer. Explain to him or her that you want to get a positive item on your report and you would like to do that by taking out a $1000 personal loan and offering a $1000 Certificate of Deposit as collateral.

So now the banker is faced with an application for a six month $1,000 personal loan secured by his bank’s own CD for $1,000. By granting the loan the bank sells a CD and earns interest off the loan itself. It is an easy decision for the bank.

Shortly after the loan has been granted it will appear on your credit report. Take the $1000 from the loan and set up a seperate savings account and use this to make the monthly loan payments. Providing you make your payments in full and on time, you will begin to improve your FICO score. What this strtegy is going to cost you is the interest rate on the loan but that will be partially offset by the interest you earn on the CD as well as a little from the savings account you use to pay back the loan.

Once your $1000 loan is paid off, repeat the process and take out another loan. If you can afford the cost of the loan, keep taking them out as each will be reflected on your credit report and you will continue to demonstrate positive behavior. Also check with your banker to see if they offer secured credit card accounts. Make sure you read the terms and conditions as these cards can be loaded with fees. If it makes sense for you, get one but use it carefully and always pay on time.

These are small but necessary steps in rebuilding your credit after a bankruptcy. You’ll discover, providing you pay your bills on time, that your FICO score will improve dramatically over the first 9 months as it projects your behavior based on a responsible history, not just the bankruptcy.

Tags: Bankruptcy, Credit, credit after bankruptcy, credit repair, Finance, rebuild credit

This entry was posted on Sunday, May 31st, 2009 at 2:55 am and is filed under Bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.