After a bankruptcy, rebuilding your credit may be the last thing you want to do. Avoid the urge to walk away from the loans and credit cards that precipitated the bankruptcy. Instead, focus on rebuilding your credit after bankruptcy. Whatever you do, don’t wipe your hands clean of credit.
Contrary to popular belief, using credit appropriately in the wake of a bankruptcy is the best way to rebuild your credit. If you follow a smart plan to re-establish your credit, it is possible to rebuild your credit score to 720 within a couple of years. This is the most important action you can take after bankruptcy.
This twofold plan begins with opening new lines of credit and concludes with paying your bills on time and in full. Therefore, keep small balances on your credit cards to ensure you are able to pay what you owe each month.
Rebuilding Your Credit after Bankruptcy Rule #1: Open new lines of credit!
Have you heard claims that you can have a bankruptcy wiped from your credit report? Do not believe these claims because they are not true. There is no legal way to wipe a bankruptcy from your credit report. However, time does reduce the impact of a bankruptcy on your credit report. All three credit-scoring bureaus—Equifax, TransUnion, and Experian—are more concerned with your recent credit behavior rather than your past credit behavior. The trick is to persuade credit bureaus to pay more attention to your recent good behavior than to your past behavior. By establishing new credit and using it responsibly, you can prove to the bureaus that you are a new person. Demonstrate to them that the bankruptcy forced you to get rid of negative credit habits and replace them with smarter financial strategies.
After declaring bankruptcy, open three new credit cards (Visa, MasterCard, or American Express) and one installment loan as part of your plan to rebuild credit after bankruptcy. Keep the credit cards active by using them at least every other month. Make only small charges, preferably less than 10 percent of the limit, and pay the balances in full.
Know that you will pay high interest rates with the credit cards and installment loan. This is one of the results of your bankruptcy. Another is that you will not qualify for the best interest rates with a low credit score. That’s why it is important to pay credit card and loan balances in full as quickly as possible.
Open credit cards and an installment loan as soon as possible after your bankruptcy. The credit-scoring bureaus respond best to accounts that have been open for a long time. Your future credit score is dependent upon opening all accounts now and paying them in full monthly.
By opening new lines of credit, you begin to rebuild your credit after bankruptcy. This allows the credit bureaus to re-evaluate your credit based on the new information it receives from your creditors. Experian, Equifax, and TransUnion are now able to judge your credit worthiness based on your current credit information. Use this as an opportunity to show them you have changed your patterns of behavior.
Don’t delay. Immediately begin proving to the credit bureaus that your bankruptcy allowed you to turn over a new leaf and change your payment behavior.
Rebuilding Credit after Bankruptcy Rule #2: Never, never, never make a late payment!
After a bankruptcy, the credit-scoring bureaus will have an eye on you, even as your score begins to climb. If you make a payment that is even one day late, the bureaus will assume you are back to your old ways, and your progress will be for naught.
The best strategy to rebuild your credit after bankruptcy is to pay your bills on or before the due date every month. This means that you must live within your means.
For more information on rebuilding your credit after bankruptcy, read this article on how to create a budget, find money, and establish habits that best afford you to bounce back after a bankruptcy.
Category: CREDIT SCORING
Your Bank’s #1 Lie: Your Credit Score Doesn’t Affect You
Do banks lie to their customers? Has your bank ever said your credit score will not affect you?
If your bank has ever said your credit score will not affect their financial relationship with you, do not believe them! Your credit score affects your all of your major financial purchases.
After conducting a private class on “How Credit Scores Affect You,” one of the participants, Lori P., sent me an email showing how banks lie to their customers.
“I am involved in an entrepreneurial program that helps people become business and home-loan ready, as well as get them ready for business start-up. Four of us in the program had attended a meeting with a founder of a bank here in Los Angeles that explained to us how to become loan-ready for his bank. He mentioned that all we needed was a 630 credit score along with other criteria.
I thought, ‘Wow, only 630? That seems easy.’
Then when I listened to your program, it made sense why we only needed a 630 – It would be money in the bank’s pocket.
-Lori P.”
After reading Lori’s email, I was livid! Her attempts to help people in her community take control of their financial future were hindered by a banker more interested in his financial bottom line than the customers he serves. That banker was thrilled to deal with customers with less than a 720 credit score because he could charge them higher fees. In my opinion, that is outrageous. How can hardworking Americans get back on their feet financially if banks are not disclosing how a customer’s credit score affects the fees they pay?
Do you believe your bank deliberately withholds information concerning your credit score and bank fees? This happens more often than you may think. If your bank does not tell you the relationship between your credit score and bank fees, you are paying higher fees than a person with a 720 or higher credit score.
There is an easy solution to eliminate all doubts of banks lying to you about the relationship between your credit score and bank fees. They can educate customers on the easy steps people can take to fix a bad credit score.
In most cases, instead of telling the truth about how credit scores affect you, banks across the country are letting their customers pay an arm and a leg in interest rates.
The banker Lori met with didn’t tell her that the difference between a 630 credit score and a 720 credit score was $63,720 over the course of a 30-year loan on a $216,000 mortgage. His bank would earn $63,720 in fees of Lori’s hard-earned money if she was approved for a home loan with a 630 credit.
That bank was deceiving customers with a 630 credit score to the tune of $63,720 over 30 years!
I wrote 7 Steps to a 720 Credit Score because I wanted to help my mortgage clients learn how to build credit and lower their interest payments. Then I decided to spread the word about how credit scores affect you. I went to bank after bank, telling them I would give them access to my book so their clients could learn how to raise their credit scores and negotiate lower interest rates.
Guess how many banks signed up? Not one.
Why would they do the right thing when they could pocket $63,720 or more?
This is so typical of what happens every day. While the “little guy” struggles to get his head above water, the government is busy bailing out big business because they are “too big to fail.” These very same businesses turn around and lie to their customers. This is flat-out unfair and wrong.
Step One to Raising Your Credit Score – Get Rid of Your Debt.
If you ever attend my Question and Answer sessions, (about how to raise your credit score), you know there is a common theme – debt, debt, and more debt.
How can someone with a lot of credit card debt raise their credit score? It’s the chicken and the egg conversation over and over.
Here’s the bottom line: Sometimes the best first step for you to take is either bankruptcy or debt negotiation.
So many of my clients are SO worried about their credit score that they don’t make a logical decision about the debt they have. When this happens, they end up paying the minimum payments on their credit cards, and never get what they ultimately want – Debt free OR a high credit score.
As I say over and over, the key to raising your credit score if you have debt is to learn your options.
Since I get so many requests for introductions, I’ve done the research on great referral partners for my clients.
If you have debt you cannot pay-off, click here and I’ll give you and introduction to a bankruptcy attorney and a debt negotiator.
If you have back taxes of $10,000, click here and I’ll introduce you to a tax resolution specialist.
If your credit is bad and you simply want to raise your credit score, click here and I’ll introduce you to a partner of ours that offers our credit improvement program.
If you have student loans, and you cannot keep up with the payments, click here and I’ll introduce you to a partner of ours.
Bottom line is this… if you are having a hard time with your debt, you need to take a look at all your options.
Once you gather all of this information, talk to me on one of my Question and Answer Sessions and together, we can figure out the next best steps to raise your credit score.
A favor, please…
If my credit program has impacted your life, you could please tell me how?
I have a dream of having 1,000 success stories on my web page, and I have a long way to go! So regardless of whether your story is one line long or ten paragraphs long, please let me know.
And if you feel uncomfortable giving your name, no need to!
Click here to be transferred to the page.
If you have had financial problems, you know how scary it is to have a low credit score. Sharing your success is going to inspire others to have hope in a bigger future. Thank you for sharing your story.
Thank you.
Preventing holiday hangovers
Just a quick reminder…
Don’t get carried away with your credit cards when shopping for holiday presents. Before the holidays are over, many consumers will charge an extra $600, $1,000, or $2,000 to their credit cards. Most shoppers don’t plan for this—it just happens. But by the time January rolls around, they have giant credit-card hangovers that leave them wondering how they can preserve their finances when they have migraine-size debt looming over them.
And remember: one of the keys to a high credit score is to keep a balance that is no higher than 30 percent of the limit. So not only will extra credit-card debt hurt your pocketbook, it will also hurt your credit score.
Keeping the right credit card balance is one of the most important things you can do this holiday season to protect your credit score. Here is my time-tested tip for avoiding the holiday credit hangover.
1. First, create a holiday spending budget.
I know a lot of parents who want to create lasting memories for their children, so they go overboard, buying tons of presents for their kids.
But think back to your own childhood. How many gifts are etched into your memory?
Probably not many. Your children will remember the time they spend with you more than the gifts they will receive.
And if you are racking up your credit card bills, you probably feel stress and anxiety, which will detract from the time you spend with your children.
So create a reasonable budget and determine how much you can afford to spend on each person on your list.
2. Leave the credit cards and debit cards at home.
I’m totally serious about this. If you don’t take credit cards or debit cards, you cannot overspend. It’s that simple. If you do take credit cards and debit cards, you can overspend and induce that hangover. So just leave them at home.
In fact, the more radical this idea sounds to you, the more important it is that you implement it.
Taking credit cards with you is just too tempting, even to the most disciplined shopper. The allure of “buy now, pay later” will allow you to make impulse purchases.
If you take only cash, on the other hand, you will limit your spending to the cash in hand. Those impulse purchases will be impossible.
3. Create “wallets.”
This is where my “envelope system” comes into play …
Before jumping in your car and hitting the local mall, pull out some plain white envelopes and write the name of each person you are going to purchase a present for on individual envelopes. (If you have eight people to buy presents for, you should have eight envelopes.)
Within each envelope, place the appropriate amount of cash you have budgeted for this person—no more and no less.
Each of these envelopes represents the wallet you have for each person on your list.
You might want to bring a little extra money for lunch, but be sure to leave your credit and debit cards at home.
When you purchase a present, use the money from the appropriate “wallet.”
This method will create a psychological barrier to impulse shopping. If you are tempted to splurge on a gift, you will be dissuaded when you consider whose wallet you will withdraw money from in order to cover the impulse shopping.
What do you think? Does this help you avoid the “holiday credit card hangover”? Leave a comment below and let me know.
Cheers!
Philip Tirone
P.S. And don’t forget to ignore the retail-store credit card offers this holiday season (and always!).
“Cash Only” Is Dead Wrong, by 720 Credit Score
Many so-called experts say that you should adopt a cash-only policy and ignore credit cards. But here’s the truth…
They are dead wrong.
Avoiding credit won’t make life easier. In fact, it will make life a heck of a lot harder. It also won’t make your credit score improve. In fact, it will make your credit score drop like a lead balloon.
If you adopt a cash-only policy, you’ll end up with no credit. And no credit is just as bad as poor credit. You see, the credit-scoring bureaus want to see that you can responsibly handle many different types of credit before they award you a good credit score. If you don’t accumulate a proven track record, you won’t get a good score.
Now, a lot of people who have been through a financial meltdown decide that the only way to turn their lives around is to stop using credit. But think of it like this: Let’s say you took a math test in school, and you failed. Your grade was an F, so you decided to stop taking math tests—to just wipe your hands clean of math tests.
Would your grade improve? Heck no. And your credit score won’t improve if stop using credit cards either. I always say that having no credit score is just as bad as having a poor credit score. They credit-scoring bureaus won’t have any information on which to judge you, so they will think: Better safe than sorry. And they will give you a low credit score.
This means
- You’ll have a hard time getting great insurance premium rates.
- You might be unable to find a job.
- Landlords might not want to rent to you.
And if you ever need a loan (and you probably will!), you will get lousy terms and pay an arm-and-a-leg in interest.
So they next time someone tells you to wipe your hands clean of credit, ignore them!
This doesn’t mean that you should get yourself into debt with your credit cards. It means you should use your credit cards wisely. Keep a low balance (less than 30 percent of the limit), and pay your bills on time every month.
And if you have any questions, be sure to leave a comment below.
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