One of the most frequently asked questions about getting mortgage financing is what to do after filing bankruptcy. You can purchase a home after filing bankruptcy, but you will need to pay higher interest rates. The faster you reestablish credit and the way you handle your credit after filing makes a huge difference in your ability to get a new home loan.
Millions of Americans are forced to declare bankruptcy every year, but even if you’re one of those people, you can begin immediately to rebuild your damaged credit by taking a few relatively easy steps. Here are some ideas to help you get back on the right credit track:
First, pay all of your bills on time from now on. Make a pact with yourself never to be late with a payment again. It may require some stricter discipline than you have been used to, but it will go a long way toward reestablishing your credit worrthiness in the eyes of potential creditors like banks and credit card companies.
Second, although it will be tempting to do because you’ll be eager to get another credit card, resist the temptation to apply for a lot of new credit. Making a bunch of credit applications all at once actually can lower your credit score and make it harder to secure new lines of credit.
Third, whether you love them or hate them, credit cards are a necessity in today’s world, even if you don’t actually plan to use them. There are many things you simply can’t do if you don’t have a Visa card or other major credit card, such as rent a car, since rental companies will require you to show them a credit card even if you’re paying cash. Since that’s the reality of the modern world, look into getting a secured credit card.
Secured credit cards require you to put a certain amount of money into an account (typically between $300 and $500), which is then considered as collateral for your purchases using the card. You’re then allowed to charge any amount of money on your card, up to the amount you have in your account, and repay it in monthly installments.
The nice thing about secured cards is that they look no different from any other card, so you can use them as ID or to make purchases (as long as you don’t go over your limit) and they allow you to begin reestablishing your credit by showing that you can make payments in a timely fashion, regardless of your previous history. As you begin to prove your credit worthiness, you may be rewarded with an increase in the amount you can charge that’s above what you have in your account.
A good place to begin your search for your first secured credit card is through your local credit union. They’re often more flexible than banks, and a number of them will actually waive the annual fee that most secured cards charge. If you aren’t a member of a credit union, shop hard for your secured card, because there are wide variations in the terms, fees, interest rates, and requirements. Some companies will even charge you a fee just to apply for a card!
You can begin rebuilding your credit almost immediately following a bankruptcy, but it will take time and a commitment to handle your finances more carefully in the future. It just takes self-control and discipline.