I had to laugh the other day when talking to a prospect that had just completed a chapter 7 bankruptcy. When it was all done, he had called up his attorney and asked what do I do next? And the attorney answered, “you’re done, there’s nothing to do”.
“But what about my credit?”
And the attorney replied, “I don’t know, go get one of those secured cards of something”.
I guess I shouldn’t be amazed any longer about how little folks actually know about credit. But it is true.
Well there is hope after a bankruptcy, probably more than you would think. For instance, banks and credit card companies are flush with cash right now and truly want to lend. They are willing to take some risks with low credit score borrowers. Even if you wouldn’t qualify for an unsecured credit card, there are some amazing offers for secured credit cards. Here is an example of one bank offering a secured card where you deposit $200, but they allow a credit line of $3,000. So it’s not all bad.
But here is a very important point. Most folks who have gone through bankruptcy shy away from credit as though it was the plague. You can’t do that. You need to get back on that horse immediately if not sooner. I am not recommending going into debt at all, but insisting that you use a credit card (wisely and sparingly) every month to begin rebuilding positive credit. Truth is you need two and if you are married your spouse needs two of their own (more on this at another time, just trust me, it’s necessary).
Next you need to get one installment loan. Now don’t go telling people I’m recommending you go into debt after a bankruptcy, I’m not. But an installment loan carries a higher point value then a credit card. So consider this, if you were already going to buy something with cash, try putting a hefty amount down and carrying a very small balance with a very small payment to build some new positive credit history. Get a term of 6 to 12 months, no more. This one is a bit tougher to get and you might have to use those credit cards a few months to get your credit scores moving north, but it is definitely worth it.
The other positive side of this coin is that after two years out of a bankruptcy, FHA will approve you to purchase or refinance a home. Yahoo. Only thing is, if you haven’t re-established your credit and have three positive trade lines (hence the two credit cards and one installment loan), then you have to start right there when you could have started two years earlier. Ouch!
People don’t really understand bankruptcy to0 well until they are in totally desperate situations. If it happens, well, it happens. Sometimes life isn’t fair and the economy isn’t fair. It’s not the end of the world, more like a little bump in the road.
Mark Serebrin – Safe Haven Credit