How Can I Repair My Credit Score After Bankruptcy? KDB Law Firm Credit and Bankruptcy Part Four

If you have filed for bankruptcy, your credit score will be affected.  So how can you be proactive and work to repair your credit? Here are some important steps to take to improve your credit:

1. Pay on Time (By Paying in Advance): Pay your current bills and loans reaffirmed in bankruptcy in advance. In Part One {LINK} and Two {LINK} of the KDB Law Firm series on credit and bankruptcy we discussed the easiest ways to both help, and conversely, harm, your FICO score: your payment history. As you now know, your payment history is 35% of your FICO score.

2.  Follow Up with the Three Major Credit Reporting Agencies: Send each reporting agency a copy of your discharge notice as well as the schedule of creditors listed in your bankruptcy (schedules D, E, F). This is an important element to being repairing your credit after bankruptcy, as creditors are no longer able to report the discharged debt as owing on your credit file.

3.  Monitor your Credit: Check with each credit agency quarterly to confirm that the creditors are abiding by the discharge order and your discharged debt is being accurately reported. If a creditor fails to accurately report the debt as discharged or is continuing to attempt to collect on the debt, they are committing “discharge violation”. If you notice such discharge violation, which is common in most cases, contact your attorney immediately.

4. Wait Before Seeking New Credit: Hold off as long as possible before seeking credit. You will find lenders who will make loans to you immediately after a bankruptcy, and they will seek you out. It is not uncommon to receive credit card offers in the mail even before you receive your discharge! However, you can expect to pay rates 5-10% higher than most people. That may not seem like a lot, but based on an average 30-year financial lifetime, the additional interest you could pay could end up as much as $200,000 or more.

5. Rebuild Credit with a Secured Credit Card: Many people looking to repair their credit start with a local credit union or bank and open a secured credit card. A secured card (meaning you back it with equal funds in a savings account) will help rebuild your credit history. After 6 months to a year of using a secured card you will find that you can get a more traditional credit card without having to put up the cash first. However, even then be very careful and read the fine print!

In summary: after you file for bankruptcy and receive your discharge, be sure to monitor your score diligently, pay your bills slightly in advance, wait until your score improves before seeking new lines of credit, and improve your score by using a secured credit card.

For more bankruptcy information, visit http://www.KDBLawFirm.net/.

Be safe and be well! ~Kirk Berkhimer, Norfolk Bankruptcy Attorney

Are you enjoying Twitter as much as I am? Find me at @Norfolk_Lawyer.

How is my Credit Score Affected if I Miss a Payment? KDB Law Firm Credit and Bankruptcy Part Two

Financial crises usually don’t happen over night. If you are like many individuals, the financial difficulties you may be facing have crept on you slowly. Credit cards that once had 0% interest may have increased after a year, or maybe the number of credit cards you have has increased over time, and now you find it is hard to keep up with the minimum payments.  An unexpected illness or injury can strain your finances. Maybe you have lost your job or have recently gotten divorced. All of these things can add up to financial crisis, where suddenly you don’t know how to pay all your bills on time.

If you are in this situation, you are certainly not alone.  You may be wondering what happens to your credit score when you are no longer able to pay your bills on time. As we discussed in Part One, paying your bills on time (by paying a bit in advance) is the best thing you can do to improve your credit score. Conversely, not paying your bills on time will negatively affect your score, as 35% of a FICO score is your payment history. The most important factor to a potential lender is whether or not you will pay your bills in full and on time. The more recent your good (or bad) payment history, the more important it will be for your credit score.

According to http://credit.about.com/od/usingcreditcards/a/latecardpayment.htm,

“Four Things Happen When You Pay Late:

1. Your creditor will charge a late fee. Your next billing statement will include a fee for the late/missed payments. Late fees typically range from $15 to $35. You'll receive a late fee each month your payment is late.

2. Your interest rate could increase. Creditors don't just penalize you with a fee, they'll often increase your interest rate to the default rate. This is the highest interest rate charged by a creditor usually as a penalty. The higher interest rate increases your finance charges making it more expensive to carry a balance.

3. The credit bureaus are notified when your payment is more than 30-days late. An entry is added to your credit report and will stay for seven years.

4. Your credit score will drop. Because payment history makes up 35% of your credit score, late payments can have a significant effect on your score affecting your ability to get new credit in the future. “

However, it is important for us to note that not all late payments are the same. While thirty- and sixty-day late payments affect your credit score more in the months they occur, they affect your credit score less as time passes. Ninety-day late payments, on the other hand, are more harmful to your credit score, and can be just as much a hit to your score as a collection.

At this point, many of you may be asking if bankruptcy will hurt or help your credit score. That is a very good question, one we will discuss in Part Three (coming soon!) of our series on credit and bankruptcy. Be sure to visit http://www.KDBLawFirm.net/ for more information.  

Be safe and take care! ~Kirk Berkhimer, Your Virginia Beach Bankruptcy Attorney.

Follow me on Twitter @Norfolk_Lawyer for more credit and bankruptcy information!