Category: Uncategorized

Credit Cards After Bankruptcy

The purpose of this blog post is to summarize Lesson 2 in our 7 Steps Program, which is the most important part of rebuilding your credit score after bankruptcy.
If you want a 720 credit score in the next 12-24 months, you need to apply for three new credit cards.  Think about it this way… you are going to rebuild your credit by strategically placing new credit around your previously bad credit.
This does not mean you are going to charge large sums on each credit card, rather, you are going to simply charge a little each month, then pay it off immediately.  With this process, you will pay $0 in interest.
Since, 46% of credit cards have a negative impact on your score (according to a Federal Reserve Board Study), we have identified the credit cards that will help you rebuild your credit score, which are listed below.
Also, we do not recommend that you apply jointly for credit with your spouse, you can read about that here:
Follow these steps until you have three credit cards each:
Step 1:  Apply for one non-secured credit card here:
If you get approved, apply for another one, and then another (three total). If you get denied, go to Step 2.
Step 2:  Apply for a secured credit card here:
With a secured card, you will need to place money in their bank in order to be granted credit.  This will help your credit the same as a normal credit card, and in 6-12 months, you will be able to change the credit card to a traditional one.
If you don’t have money for a secured credit card, then go to Step 3.
Step 3: has partnered with a nationwide financing company in helping people rebuild their credit score after bankruptcy.  Everyone will be approved, you can read about it here.

Pay attention to #4 if you are married

When it comes to the number of credit cards in your wallet, there is a sweet spot that will provide you with the best FICO score.
After all, if you have too many credit cards, the credit-scoring bureaus worry that you might get yourself into a financial bind. If you have too few, they do not have enough information about your spending behavior.
So the credit-scoring bureaus give the best FICO scores to people who have three to five credit cards.
If you have fewer than three credit cards, or if you have more than five credit cards, here are some things to keep in mind:
1. If you need to open credit cards, make sure that you open credit cards that report to all three credit bureaus (Equifax, TransUnion, and Experian). Otherwise, your efforts will be for naught.
Here is a list of the best credit card offers out there that report to all three bureaus.
2. If you need to apply for more than one credit card to reach the three-to-five goal, apply for them all at once. Part of your credit score is based on the age of your accounts. If you open one now, and then wait six months to open another, you will lower the average age of your accounts.
3. If you have more than five credit cards, do not close them. Doing so could hurt your score by lowering the average age of your accounts. Instead, simply stop using the extra cards and allow them to become inactive.
4. Never apply for credit jointly with your spouse. You and your spouse should each apply for three to five cards so that you both build separate credit identities.
This is important in case you ever find yourself in a financial bind and unable to pay all of your bills. If you have joint credit cards, both of your credit scores will take a hit, but if you build separate credit profiles, only one spouse’s credit score will suffer. The other can be preserved and then leveraged for loans.
P.S. Remember: Make sure you apply for credit cards that report to all three of the credit bureaus. Here are some of our favorite credit card offers.

Why “cash-only” is for the birds

Here is a big myth: It’s better to be a cash-only citizen and shred all your credit cards.
The truth is that you need credit cards if you want to have a high credit score. The bureaus give the best scores to people who have between three and five cards.
If you do not have at least three cards, they do not have enough information to judge your spending and payment behavior, so they give you a low score. Better safe than sorry, they think.
If you have no credit cards and operate on a cash-only basis, you are going to be in for a world of hurt down the road when you decide to buy a house, rent a condo, or lease a car.
Fact: You need credit to build credit. 
If you have anything lower than a 720 credit score, and you have fewer than three cards, here is an easy way to increase your score: Apply for new credit cards. Then wait six months, and your score will start to improve.
Click here for a list of cards we have found for people who want to build their score quickly. These cards report to all three credit bureaus as well as report your proper credit limit to the bureaus.
Only cards that report to all three bureaus—Equifax, TransUnion, and Experian—will help your score. Here are a couple of links to card offers that definitely report to all three bureaus:
1) Best credit card offers for people with credit scores below 550.
2) Best credit card offers for people with credit scores that fall between 550 and 719.

The Importance of Credit Card Balances and Active Credit Accounts

Why is your credit card balance important? Does it really matter? Should you use all your credit cards every month? What happens if you skip a month or two?
Knowing your credit card balances and keeping your credit accounts active are important because both are factors when computing your credit score.. If your goal is to increase your credit score, below are some tips concerning your credit card balances and keeping your accounts active.
One of the most frequently asked questions about credit is: Can I raise my credit score by paying off my debt?
The short answer is yes, but there’s a big caveat: You must keep your credit cards active.
Two of the factors that the credit-scoring bureaus consider when assigning credit scores are:

  • Your balance-to-limit ratio
  • Whether your accounts are active

Your balance-to-limit ratio—Credit-scoring bureaus award higher scores to people who have credit card balances that are no more than 30 percent of their overall limit. If your limit is $10,000, for instance, your balance should never exceed $3,000.
The first step to help students increase their credit score to 720 or above is to maintain a balance no greater than 30 percent of each credit card’s limit. This may seem insignificant but it shows the credit bureaus that you are in control of your spending habits.
30 percent is a great goal, but if you charge no more than 30 percent of your credit limit and pay that amount monthly, that’s even better. Your credit score will soon reflect your financial discipline by rewarding you with a credit score of 720 or above.
You may have heard, “It doesn’t matter how much you charge as long as you pay the full balance monthly.” This is not a true statement. It always matters when your credit card balance exceeds 30 percent of your credit limit. If you want to increase your credit score, know the importance of keeping your credit card balance less than 30 percent of your credit limit.
From a credit-scoring perspective, bureaus look at your credit-card balances as a snap shot in time, which means that if you have a credit card with a $2,500 limit and a $2,000 balance on the day your credit report is pulled, your score will be lower, even if you just sent in a check for $2,000 that simply has not cleared the bank.
When teaching students how to increase their credit score, I stress the importance of never exceeding 30 percent of their credit limit. If possible, I tell them to strive for a zero balance because the closer they can keep their balance to zero, the better!
The second step to help students increase their credit score to 720 or above is to keep their credit cards active. In my webinar, I explain the importance of keeping credit cards active when building and rebuilding credit. They must use their credit cards in order to build a credit history. Otherwise, the credit-scoring bureaus have no way of telling whether you are a responsible borrower.
Think of it this way: Let’s say you own an airplane. Does owning an airplane automatically get you a pilot’s license? No. To get a pilot’s license, you must take classes, demonstrate your ability to take off and land, log the required hours of flight practice, and get the proper certification.
Likewise, owning credit cards is not enough. You must prove you know how to use them wisely. This proof is your credit history because it demonstrates your financial discipline or lack of discipline. Credit-scoring bureaus base your credit score on your most recent credit activity. Therefore, use your credit cards regularly
So how do you keep a low balance on your credit cards while still keeping them active?
Simple. The ideal number of credit cards is between three and five major revolving credit cards. Let’s say you have four. Although you want to pay them off, you know keeping credit cards active will increase your credit score. Here is a strategy for raising your credit score while paying off your debt.

  1. Identify four bills that have a set monthly payment. For instance, your gym membership, magazine subscription dues, car insurance, and health insurance bills are probably the same amount each month.
  2. For each of your four credit cards, schedule an auto pay of one of these bills.
  3. Then, create an auto payment from your checking account to each credit card company. This auto payment should occur two days after the charges appear on your credit cards. For example, schedule your Visa, MasterCard, American Express, and Discover Card auto payments after your gym membership, magazine dues, car insurance, and health insurance bills appear on the statements. Then create another level of auto payments so your checking account pays your credit card balances two days later.

This way you will never pay interest but will keep your credit cards active while paying credit card debt monthly.
So what about other debt like loans? Here’s a tip on how to build credit by getting small loans.
Let’s pretend you are going to buy new furniture. Assume you have enough money to buy the furniture outright, but the goal is to build your credit.
If the bank will report the loan as an “Installment Loan” to all three credit bureaus, it’s a great idea to finance part of the purchase. Then, pay the bill for six months before paying the remaining balance in full.
Let’s assume you finance $5,000 and pay 10 percent as an interest rate. Your monthly payments are $41.66. You pay these for six months before paying the balance in full. During these six months, your interest payments are small. The greatest benefit is a new item appears on your credit report as “Paid in Full” and “In Good Standing.”
If you have any other questions about credit, be sure to post them below.

Bankruptcy: Should You Consider This Option?

When overwhelmed by debt, why should bankruptcy be a consideration for a temporary financial meltdown? It shouldn’t be considered if you can recover your financial footing quickly. But if there doesn’t seem to be any relief from your burden of debt, maybe you should consider bankruptcy.
Bankruptcy is a great concern for people struggling financially, especially when they’re doing all they can to stay afloat financially. Why would they willingly identify with people who may or may not have paid their bills on time? What does bankruptcy do for them except further their shame about their financial situation?
I have met many people who are against bankruptcy. They would rather continue struggling financially  than file bankruptcy and rebuild their financial lives.
One of the main hurdles for people I have spoken with is the stigma they associate with bankruptcy. Their next hurdle is waiting seven years or more for the bankruptcy to drop off their credit report. Mentally, they associate bankruptcy with seven years of financial death. I understand their fear of bankruptcy and their hesitancy in considering bankruptcy as an option.
Whenever someone asks me about bankruptcy, I consider their emotional and financial stress. No one wants a negative credit history or to be known as an irresponsible person not worthy of credit.
Here are a few ideas to consider when asking if bankruptcy is an option for you. First, you are freed from the constraints of your past credit history. Immediately after your bankruptcy is discharged, you can begin rebuilding your credit history.
Then there’s emotional peace in your home. You’re no longer stressed by creditors calling you all hours of the day, nor is there an endless stream of collection notices in your mailbox. While you should always repay debts you owe because it is the right and responsible thing to do, filing for bankruptcy may be the only way you can make a clean break from your overwhelming financial crisis.
Your beliefs play an important role when deciding whether you should file for bankruptcy. If you strongly believe in keeping your promises, accepting bankruptcy is an extremely hard decision for you. But sometimes bankruptcy is your best option.
If you are struggling financially and wondering, Should I file for bankruptcy? consider other alternatives:
Debt consolidation allows you to combine all your debts into one loan. One payment is certainly better than multiple payments or robbing Peter to pay Paul.
Loan modification programs and reductions in payments are another option for distressed homeowners. Contact the hardship department for your creditors and ask them to consider a change in terms to help you make it through the financial crisis you are experiencing. Some banks are willing to accept reduced payments. They know that many people are teetering on the verge of bankruptcy. In fact, you might want to call your mortgage lender and ask: “Considering my current financial distress, is bankruptcy a viable option or can I qualify for a loan modification program?” Rather than having all your debt discharged during a bankruptcy, many creditors will simply lower your payments. After all, something is better than nothing.
Should I file for bankruptcy if none of these options are available?
If you have exhausted all options, you may want to consider filing bankruptcy, especially if you face the possibility of losing property. Bankruptcy enables many people to hold on to their property despite their financial woes. Before deciding if bankruptcy is for you, evaluate your finances. If you cannot meet the minimum monthly payments for your bills, filing for bankruptcy will stop the late fees and interest on your past due accounts. Bankruptcy also gives you an opportunity to learn from past mistakes and apply what you’ve learned when making a new start. Emotionally, you’ll feel better because you won’t have to worry about harassment from creditors, losing sleep, or worrying about your debts.
A bankruptcy on your credit report will definitely lower your credit score, but so will late payments, no payments, repossessions, and collection accounts.
After you’ve filed bankruptcy and the bankruptcy is discharged, you must immediately begin to rebuild your credit. The 720 Credit Score program teaches students how to properly rebuild their credit after bankruptcy or a financial meltdown. Some students who have followed the guidelines in the program have been able to purchase a home two years after bankruptcy! A bankruptcy cannot limit your future financial success if you establish good financial habits, change your spending habits and pay your bills on time. You can achieve financial stability after a bankruptcy.
Your decision as to whether or not to file bankruptcy is a personal one. Learning how to create a budget and sticking with it is always a financial advantage. Seriously consider all of your options and that includes bankruptcy before making a strategic choice. If bankruptcy is your best option, begin the process today!

How Your Credit Score Affects Your Future Job Application

Do you have a job? If your answer is yes, great! There’s no need to worry about your credit score. If you don’t have a job, are you satisfied with your current credit score? Will your future employer be satisfied with your credit score?
Why should an employer consider your credit score? Because it allows him or her a glimpse into your character and also lets them know if you’re a trustworthy person.
Inc. Magazine shared a statistic which is not favorable for job seekers with poor credit scores. According to the survey cited by the magazine, about 60 percent of employers occasionally run credit checks on potential job applicants. If employers are searching for the best employees, they will probably select an employee with a high credit score.
Competition for jobs is growing! With the current high unemployment rate, people with low credit scores should be concerned, especially if the position they desire involves managing money. Employers look for employees who can add value to their company. When considering credit scores, some employers may be hesitant to hire employees with a poor credit score because it can be a sign of irresponsibility. Therefore, they may not offer a job to a candidate with bad credit.
Don’t despair if your credit score is low because there’s still hope! There are two rules which can offset your low credit score.
Credit Scores and Jobs Rule 1: Highlight other areas of your life which demonstrate you are a responsible person. If you’ve ever been entrusted with the treasurer position in a nonprofit organization, tell your potential employer. He or she needs to know others have trusted you to manage their funds. Also, don’t forget to share a glowing letter of recommendation from a previous employer, especially when it compliments you for tasks that required a tremendous amount of trust, loyalty, and responsibility.
Credit Scores and Jobs Rule 2: Your credit score may be overlooked if you give truthful examples of your trustworthiness, especially if you can explain the events which caused your bad credit. Be up front and open with a potential employer before he or she runs your credit report. They already know the effects of a sluggish economy on personal and business finances. Your transparency might make them more sympathetic to your circumstances. Pitch your situation as a learning experience. Tell the employer what you’ve learned and how you have grown from the experience.
Make a commitment to rebuilding your credit. The results will be obvious when your credit score increases. If you walk into a job interview armed with facts about your credit score, how you have turned over a new leaf, and what your credit report indicates about your current behavior, a potential employer might be impressed that you overcame adverse circumstances, especially if those extenuating circumstances stemmed from the recession.
Credit checks can be stressful for job applicants with a poor credit score. It may appear that credit checks are another way to eliminate applicants who may otherwise be qualified for a job. Refuse to accept that thought. Instead, be open and transparent because great employers value an honest account of your situation.
When it comes to credit scores and jobs, be sure you are ready to be forthright about your past mistakes and able to offer evidence of your progress. In doing so, you allow employers to look past that three-digit number and offer you the job.

One, Two or Three: How Many Credit Cards Should You Have?

There is great debate over the number of credit cards a person needs for the best possible credit score. Some say one. Others say two. Then there are those who say three. Who’s right?
A question I frequently get is: “How many credit cards should I have if I want to earn the best possible credit score? I receive a lot of credit card offers in the mail. Should I apply for them?”
My standard answer is, “Between three and five.” To get the best possible credit score, you need to have the right number of credit cards. Why? Because the number of credit cards you have is a big part of your credit score. If possible, avoid retail store credit cards since it restricts where you shop. The best credit cards to have are revolving credit card accounts. These include Visa, American Express, MasterCard, or Discover.
If your credit score is 720+ and you have an excellent credit history, one or two credit cards may be all you need. However, if you’re rebuilding your credit, one of the biggest factors in determining your credit score is the number of credit cards you have. Why? Because the credit-scoring bureaus will not have enough information to assess your ability to pay credit card debt. If they cannot judge your payment history or do not feel comfortable that you are able to pay your bills on time and in full, they will not give you a high credit score. Their only option is to lower your credit score.
You may decide to pay cash and avoid credit cards. That’s not a wise decision because no credit is just as bad as poor credit. If the credit-scoring bureaus do not have enough information about your payment history, they give you a lower credit score. Their goal is to maintain a healthy credit economy and the best way to do that is to increase the credit scores of those with a good payment history.
On the other hand, if you have too many credit cards, the bureaus worry that you might be overextended. People with more than five credit cards may be tempted to accumulate a great amount of debt, especially during financial difficulties. The credit-scoring bureaus respond to this threat by lowering your credit score.
Having three to five credit cards is the best answer. This is the ideal number of credit cards for credit bureaus to evaluate your credit card payment history and it also shows your ability to manage the cards and debt you have.
If you do not have three credit cards, seriously consider getting at least three!
Here are credit cards for people whose scores are below 550.
Here are credit card offers for people whose credit scores fall between 550 and 719.
And here are offers for people with credit scores above 719.
If you have more than five, do not close the extra accounts! Doing so will not help your score as it might lower the average age of credit cards. Instead, stop opening new accounts and be sure to keep the proper credit card balances so you can show the credit-scoring bureaus that you are responsible with all your credit cards.

How Does a Collection Affect Your Credit Report?

When a financial meltdown occurs, you may not have the ability to pay your bills on time. Depending on the duration of the meltdown, you may receive one or more collections on your credit report.
Many people are concerned about collections on their credit report. In fact, one of the most frequently asked questions about a credit score is, “What do I do about my credit score if I have a collections on credit report?”
There is reason for concern because a collection account on your credit report is a big deal. It is usually a signal to creditors that you are struggling with paying your bills. As a result, most creditors will not consider you credit-worthy and will be unlikely to grant you a loan. Even though a collection account is a red flag on your credit report, it is not as bad as having a foreclosure or bankruptcy on your credit report. But please know that collections, foreclosure, or bankruptcy will lower your credit score.
Let’s assume your financial meltdown was temporary and you are now able to pay your bills on time again. You want to show your creditors that their trust in you to pay your bills was right. Therefore you want to pay off your collection accounts. As crazy as this may seem, paying a collection account lowers your credit score. Why?
Collection accounts hurt your credit score for two years. If you pay those accounts after not paying for two years, you renew the seven year period in which the item stays on your credit report. Even worse, your credit score decreases again.
So what do you do about those pesky collections on your credit report? Paying your bills is your responsibility, even if it causes your credit score to suffer. However, you can and should negotiate with the creditor or collection agencies to minimize the damage.
Negotiating with a creditor or collection agency is the best way to resolve a collection account. It is a win-win situation for both of you, if the creditor or collection agency is willing to negotiate because it is better to receive partial payment than no payment. Though this doesn’t remove the collections from your credit report, paying a lesser amount can surely help your pocketbook!
The best strategy is negotiating for both a smaller payment and a letter of deletion.
Please do not confuse a letter of payment with a letter of deletion. They are different! A letter of deletion is a letter your creditor or collection agency sends to the credit bureaus giving them permission to remove the collections on your credit report. Once the collection account is removed, your credit score will surge because the collection account is wiped off your credit report!  You have satisfied your debt as well as cleaned up your credit report. Awesome!
Qualifying for a letter of deletion is tricky though. This technique works best if the collection item was not correctly sent into collections. How will you know if it was or wasn’t correctly sent into collections?
The Fair Debt Collections Practices Act can help you know if your account was correctly sent into collections. This Act limits the ways creditors and collection agencies can contact you. If you believe they have violated this Act, you may be able to get a letter of deletion as long as you promise to pay the collections on your credit report. The most common violation of the FDCPA occurs when a collector fails to advise debtors about their right to dispute part or all of the debt within 30 days of first contacting the debtor.

What Should You do with Pre-Approved Card Credit Offers?

Thousands of pre-approved credit card offers arrive in the mail daily. Prime and sub-prime lenders mail these offers to increase their customer base and it works! Many people accept the offers they receive in the mail.
If you are like most people, you have also received several pre-approved card credit offers in the mail advertising low interest rates, an amazing new credit limit, or other special benefits. You might be wondering how these offers will impact your credit score and whether they are a good deal.
Before accepting these unsolicited pre-approved credit cards, consider the following facts:
Fact Number One

Don’t be deceived! Pre-approved does not mean you will receive the credit card and all the benefits it comes with. This is a fishing expedition. You were selected because your name appeared on a list of consumers that the credit card company purchased from credit-scoring bureaus who meet their minimum credit standards for the card. If you are the recipient of one of these pre-approved offers, you may see the words “promotional” and “pre-approved” listed on your credit report. Some people may apply for the credit card simply because they were pre-approved. What they don’t understand is that a pre-approved credit card does not mean they will receive the credit card. Read the fine print. It explains that final approval is based on the information in your credit application.
Fact Number Two

Pre-approved card offers do not affect your credit score because they are a soft inquiry on your credit report. However, this soft inquiry turns into a hard inquiry when you apply for the credit card because the credit card company must then pull your credit report and do a real credit check. This results in a slight dip in your credit score. Remember that 10 percent of your credit score consists of the number of hard inquiries on your credit report.
Fact Number Three
Always, always, always read the fine print before accepting a pre-approved offer. The large words on the offer are to capture your interest and entice you to accept the card. This is a sales pitch. Most sales pitches are for people with excellent credit scores, not for those who meet the minimum requirements. Fight the temptation of zero interest rate for a year on new purchases because you may not qualify for that perk or any of the other perks. A gifted sales writer knows how to entice and persuade with words. Know your credit score! This is the only way you’ll know if you can qualify for all the card promises.
Fact Number Four

Avoid adding more credit cards if you plan to make a large purchase, usually a home or a car, within a year. Why? Because a new credit card can negatively impact your credit score in the following ways.  First, your credit score will decrease because of the hard inquiry made by the credit card company when they pull your credit report. Additionally, a new credit card account will reduce the longevity of your credit accounts. 15 percent of your credit score is determined by the age of your credit accounts. Old age means a better credit score. Finally, if the new card exceeds the 3-5 credit card limit, you’ll have too many credit cards and your credit score may drop.
Fact Number Five

Identity thieves love pre-approved credit card offers.  They don’t care if you meet the minimum requirements. All they care about is intercepting your mail and opening a credit card in your name. This may lead to your credit being severely tarnished. You will no longer worry about your credit score, too many credit checks, or applying for more credit. Identity theft will cause you to focus on repairing the damage the thief does to your account.
To avoid this threat, opt out of all pre-approved credit card offers. To opt out, send a letter to the credit scoring bureaus and ask to be removed from their lists or you can call (888) 567-8688 and ask to be removed from all credit card offers.
Note:  Always review your credit report to protect yourself from identity theft.
A final note about pre-approved card credit offers:  If you really want to apply for a pre-approved credit card, search for a credit card which accepts consumers with your FICO credit score. To get your true FICO score, go to Select the card which meets your needs. Avoid signing up for the first offer you find. Compare the credit card offers to get the best credit card for you. Just because something arrives at your door doesn’t mean you should put it in your wallet. Shop around! Make wise decisions!