Q: I went through Bankruptcy with your firm over three years ago but my credit score is still fair. How do I increase it? – JoAnn
JoAnn…and timely. We were just discussing a similar scenario at our Attorney Meeting.
Credit Scores are important for many reasons and financial hardship may have caused yours to take a significant hit. It will take some diligence and patience on your part; but it is possible to raise your credit to a healthy level after Bankruptcy.
It’s important to know where you stand. If you’ve not already done so, request a copy of your credit report. You are eligible for one free report a year from Experian, Equifax and TransUnion. There are other places to get free credit reports; but check thoroughly to ensure the “free” report doesn’t mean committing to services and fees later on.
When you receive your report make sure there are no errors and all pre-bankruptcy debts have been accurately recorded as “Included in BK”. It is within your rights to dispute any inaccuracies. Continually monitor your credit scores on Experian, Equifax and TransUnion.
Always pay on time, even pay early. A missed payment will really set you back. Remember, you need to demonstrate the consistent ability to manage your financial affairs. Up to 35% of your Credit score is based on payment history. To establish payment history you’ll need a major credit card. If you didn’t keep one open during your bankruptcy you might try a secured card.
Many financial institutions offer secured lines of credit with the purpose of helping their clients establish better credit ratings. These ‘start-up loans’ use secured accounts as collateral and are a great way of re-emerging onto the credit field. After you have shown consistency in borrowing and repaying on a timely basis with your secured credit card, you can apply for a revolving loan, or a traditional credit card.
Inquiries for new credit appear negatively on your score, so only apply for new credit if you have to. Conversely, don’t close accounts. It may seem counterintuitive; but closing accounts reduces the amount of credit you have available, thus lowering your score.
A year or two after demonstrating your ability to manage your finances, (by staying well below your credit limit and habitually paying bills on time), it’s a good idea to add a loan. Your interest rate may be higher than you’re used to…so find a car you can pay off with flying colors, or a line of credit to repay without a hitch. A line of credit is a loan in which the total amount is approved by the lender; but the borrower uses (and repays) the loan in increments. Interest is charged only on the amount used, although there is generally an annual fee. By successfully repaying your loan, you will position yourself for a higher credit score and lower interest rate the next time you’re in the market.
Remember to have patience, and unwaveringly pay your bills on time. Good credit will happen again.
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