Credit Recovery – Phase III – After Bankruptcy Credit Recovery

Ok. So you have received your bankruptcy discharge. Great! Take a moment to congratulate yourself. You have taken the quickest and smartest route to get back on track financially and recover your credit score.

This phase of our bankruptcy recovery program covers the next 9 months bringing the total time covered by this program to a little over 1 year.

Month 1: Sign up for CreditKarma.com

If you have not already done this then click the button above and sign up. You want to do two things this month if nothing else. One, you want to check where your credit score is and log it. And two, you want to confirm once again that no new reporting is occurring on your credit report from any creditor you did not intend to retain. For the most part this means you should only see car payments.

Note on mortgage loan reporting after bankruptcy: In most jurisdictions, mortgage loans are not reaffirmed unless the loan agreement is modified by the mortgage company in some manner that benefits you. This means they would have to agree to reduce the interest or balance. If the mortgage company does not modify the loan the court will generally not allow you to reaffirm on the loan. This does not eliminate your rights under the contract or to the house. It does mean the mortgage company will not report your payments. This is unfortunate. You can resolve this problem by ordering a payment history from your mortgage lender and submitting it personally to the three credit bureaus when you are ready. I would suggest you wait to do this prior to applying for a large loan.

Month 2: Get a secured credit card.

A secured credit card is a card where you put down a secured payment. The payment generally is around $300. The value of the secured credit card in the rebuilding process is not to have credit but as a vehicle to get reporting on your credit report to assist in your score going up.

Note on using a secured credit card to rebuild your credit: 1) Use it when possible. Remember, you are trying to get reporting on your credit report. Even if you have $20 in your pocket it is better for recovery purposes to use the secured credit card and send the $20 in as a monthly payment. 2) Do not pay of the balance each month. It is the month on-time payments towards the balance owed that is helping your score increase. Be patient. Think of it as a “project” and work the recovery program.

Four things to look for in a secured credit card: 1) A reputable company with good ratings. I think you have learn your lesson if you have dealt with bad lenders as part of the debt you eliminated in your bankruptcy. 2) Verify that they report to the three major credit bureaus on a monthly basis. 3) Verify that the interest rate you will be paying is not outrageous or that there are hidden “junk” fees. 4) Find one that guarantees that they will convert the card to an “unsecured” card after one year of good payment history.

Month 3: Review your credit report and consider disputing any misreporting.

Disputing bad reporting is an effective tool to guard and assist in the improvement of your credit score. Some of the areas to review are current reporting on your vehicle and secured credit card to insure accuracy. This reporting has the highest impact on your current credit score. Next look at “inquiries”. The number of inquiries has an effect on your score also. If you see inquires that you have not authorized contact the company to find out how they got your social security number and why they are pulling your report. This could uncover a creditor that may not have gotten notice of your bankruptcy discharge. Finally, just look for any historical inaccuracies you can dispute.

Note on disputing inaccurate credit reporting: The provides that if a credit citation is disputed the credit bureau has to notify the reporting entity who has 30 days to confirm the accuracy of the reporting. If the reporting is not confirmed within 30 days they disputed item must be removed from the report. This is a power tool to protect and manage your credit score. Don’t abuse it but use it where needed.

Month Four: Educate yourself!

This rudimentary creditor recovery course is by no means everything you need to know. This course is targeted to help people coming out of bankruptcy get started on the path to a higher credit score. There is an infinite amount of material out there about how to rebuild your credit. Be careful about relying on unverified information or suggestions that sound too easy, too good, or illegal. Chances are they are exactly that.

Fundamentals of getting a good credit score: 1) Insure bad reporting is shut down. 2) Get new reporting going. 3) Get multiple sources and different types of loans reporting. 4) Pay on time but not in full each month. 5) Guard against over-extending yourself.

Month Five: Consider this shortcut.

One shortcut to getting a positive boost to your credit reporting is to approach a relative to add you as an authorized user. First, be sure to select a relative with a good credit score that pays on time. If they are hesitant, you can tell them you do not want a card. They would be helping you out because credit card companies generally report each month payment on both the primary card holders credit report as well as the authorize users credit report. In reality, while being an authorized user sounds like you are assuming a responsibility, you are not. You do not become responsible for money owed on the credit card unless you sign a contract, in this case an application. Most credit card companies do not require the signature of a person being added as an authorized user. They will ask for their social security number. But once again, giving your social security number does not make you responsible for any past or future debt owed on the credit card.

Month Six: Think about identity protection.

Everyone is getting hack and having user information stolen. In most cases the ultimate goal of the hacker is to access information that they can turn into a financial advantage like credit card numbers, social security numbers, etc. You will not have a lot of credit coming out of a bankruptcy so your vulnerability to financial losses will be low initially. You do not, however, want anyone ruining your credit recovery project by taking out and not paying debt in your name. Consider getting identify protection like LifeLock or a similar program offered by the credit bureaus. An ounce of prevention…as they say.

Month Seven: Stepping it up.

You are past the six month point of being out of bankruptcy. The longer you are out of bankruptcy and recovering the lower your interest rate will generally be. A next step type of loan is generally a furniture loan. Be careful. First, make sure you can afford it. Second make sure the interest rate is not too high. And third, make sure they report so it helps your credit.

The truth about interest rates: Interest rates are a discrimination too. Generally, we are told they are a reflection of risk of loss. However, right after a bankruptcy when you have less debt then most time in your life, your risk of non-payment is generally low also. Nevertheless, lenders, especially car sellers, will attempt to make you think you have no control over what interest rate you are eligible for. This is not true. Interest rates after bankruptcy are to some degree negotiable. You do not have to roll over for 20+ percent. Negotiate! You may not get 5 or 6 percent on a car loan within the first 12 months of being out of bankruptcy but you can certainly getting it into the low teens if not better.

Month Eight: Focus on a banking relationship

Getting on a good relationship with the right bank can be invaluable. Local bankruptcy and specialized credit unions are generally more appreciative of such a relationship. Go out and compare. Are you getting the best rate on savings? Are you paying for checking? Do the have a secured credit card and will work with you recovering your credit. Smart consumers educate themselves about there their money is going but also about where it is kept. The day will come when you want to apply for a home loan. A good banking relationship can go a long way.

Your twelve-month check-up.

Go back and check your credit score again. Compare it to your pre-filing score and any other score you have tracked since you have started. If you have done all the things listed in this program it would be remarkable if your score has not increase by near or in excess of 100 points. That is the goal of this program.

Once again pat yourself on the back. You have come a long way from a stressed out debtor to hopefully a more financially responsible and less stress person.

I will leave you with three thought to consider to help you more.

Get a budget. – They are hard to maintain. However, staying on budget is the key to being able to save.
Life on less than you make. – Think how your life and stress would be if you lived in the realm of “surplus”.
Don’t keep up with the Jones. – When we are young it seems like we need or should have everything. When you are older you will look back at these valueless items and shake your head about all the money that has gone through your hands. Ask yourself before every purchase, “Is it a “need” or a “want”? Stick to buying what you need.

Thank you for using our credit recovery program. It has been a pleasure for the attorneys and staff at The Merna Law Group to work with you. We are always thankful for any referrals. What better gift to give a friend or family member than the gift of lifting their financial stress from their shoulders.

Thanks again and remember “Fresh Starts…Start Here” at The Merna Law Group.

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