Do you know that you can get credit soon after you file a bankruptcy and get discharge from your debts? Yes, it is true. Though bankruptcy has a devastating effect on your credit score, yet it gives you the opportunity to make a fresh start. However, while trying to rebuild your credit after a bankruptcy, you should avoid certain mistakes as otherwise you’ll not be able to establish a good credit record. Read on to know about such mistakes and how you can avoid them.
- Not cleaning up credit reports – After emerging from a bankruptcy, many people find that there are open and overdue accounts on their credit reports when actually the obligation have been wiped out as a part of bankruptcy. If you experience such a problem, you should contact the credit bureaus and ask them to report the accounts as “included in bankruptcy”. Failing to do so may hurt your score even more. You should also dispute other errors (if any) on your credit reports so as to build a good credit record.
- Not reading fine print carefully – After filing a bankruptcy, you may not be able to take out a credit card with a favorable interest rate. You may have to obtain a card with comparatively high rate of interest. However, you’ll make a big mistake if you don’t read the fine prints while taking out such cards. You should also go through the mails that you receive from the credit card issuers. Though the CARD Act has imposed certain restrictions on credit card issuers, yet you should be aware of loopholes. It is true that the card issuers cannot hike rates without giving a 45 day’s notice. As per the Act, the consumers can opt out or reject certain terms and conditions in relation to their accounts. However, you may not choose to opt out if you’re not aware of the notice period. In such a situation, high interest bills may pile up with time and it may be difficult for you to pay off debt in future.
- Secured/prepaid cards not being reported – Often people take out secured or prepaid credit cards so as to rebuild credit after a bankruptcy. However, many a times, the payment history on such cards are not reported to the credit bureaus. As a result, these cards don’t help in rebuilding your credit after a bankruptcy. So, before taking out such cards, make sure that the issuers report your prepaid or secured card payments to the credit bureaus. In addition to this, negotiate with the card issuers to report responsible credit card behavior to the bureaus without mentioning that the payments are made on a secured card.
- Not paying bills on time – It is high time that you make a habit of paying your bills on time. Otherwise, you’ll never be able to rebuild a good credit history. You can set up an automatic bill payment with your bank in order to pay your bills before on on-time.
If you use a certificate of deposit (CD) to rebuild credit after a bankruptcy, then make sure you choose a reasonable amount of time (at least a year) to lock up money in the CD. Moreover, if you need to take out a small amount of loan in order to open a CD, then you should make your loan payments on time. By the time your CD matures, not only you’ll be able to establish a good credit history, but also you’ll earn a substantial amount of money.
Samantha Taylor is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like ‘Mortgage that you can afford’ , ‘ Mobile Home Loan with Bad Credit’ , and ‘ How much mortgage can I borrow”?
