There is a right way to apply for credit or loans after bankruptcy. The three basic steps are listed below. You can’t skip any of the steps and each one has a learning curve just as any educational course does. If you try to shortcut the process it will cost you thousands in interest and fee charges.
1. How to Increase Your Credit Score
Your credit “score” is a three digit number that is assigned by credit agencies and reflects the risk of making a loan to YOU.
One odd fact about credit card accounts is this: lenders give you a credit line but if you use all of it you hurt your credit rating.
The reasoning of the credit bureaus is that any consumer who is at the top of his credit limit is in financial difficulty.
Your goal is to use no more than 50% of the credit available to you on your cards. You might think this requires you to find enough money to pay down credit cards that are showing balances of more than 50% of the credit line – but that’s not the only solution.
If you have paid the account responsibly you can request the limit to be raised. This will have the same result as paying down the accounts.
For example, if you have an account with a limit of $2000 and you have a balance of $1500 on that card, you are using 75% of your credit line.
This is not a good way to go. What happens if the bank raises your credit limit to $3000? No, it doesn’t mean you have more money to spend – but your $1500 of debt is the same amount yet is only 50% of the credit you could use.
2. Understand The Credit Approval Process
Regaining credit is possible if you know what lenders are looking for when you apply to borrow money. In your case, I would recommend you to ask the lender if they work with people who have bankruptcies in their past. What minimum credit score will they accept? Do they report their accounts to the credit bureaus on a regular basis?
Why would a lender even consider a loan or credit line for someone who had filed bankruptcy? Answer: it’s a safe loan. You can’t file bankruptcy whenever you please and must wait eight years before you are eligible to file again. Lenders have time to collect if you don’t pay.
Don’t skip step 1 here and jump into trying to get credit immediately without first taking steps to improve your credit score. It won’t work and is the most common mistake made by those who are trying to regain credit.
3. Know Where and How to Apply For New Credit
Be open and honest with potential lenders about your credit situation. You can’t hide a bankruptcy and you can’t talk your way into credit if the numbers don’t add up.
If you have taken the steps to improve your credit score and understand what lenders look for in granting loans, you may be ready to apply for a new account.
Be ready to document all of your income and highlight improvements in your financial picture that have occurred since your bankruptcy. Look carefully at all terms of any credit or loan you are offered to see if there are prepayment penalties or extra fees added in.
Expect to pay a somewhat higher interest rate than someone with a clean credit file would have to pay. That doesn’t mean you should accept a loan with ridiculously high interest. You can do better than that if you just keep trying.
As you see, there is a way to get credit after bankruptcy. However, you need to do it right and without hurry because if you fill out applications and hope for the best – the only businesses that grant to you will add high interest rates and perhaps other finance charges.
You will be considered high risk and any credit given will be costly which will create big holes in your pockets! Stay around and don’t miss our guide on credit repair!
