If you have a recent bankruptcy, it's a pretty sure deal your credit scores have dropped quite a bit. Though time will gradually cancel out much of the damage, it's still critical that you begin working on cleaning up any remaining credit issues and reestablish a good payment history to get your credit rebuilt as quickly as possible. The following are a few simple steps that can help you rebuild your credit more quickly and make it easier to qualify for a mortgage in the future.
1) Make all payments on time. This is probably pretty apparent to most people already, but it's worth mentioning because it's super critical. If you went through bankruptcy, mortgage banks will want to see that you've developed good payment habits since then. Being late here or there could harm your ability to qualify for a new loan even if your credit profile is otherwise pretty good. Make sure you send in your payments well in advance of the due date so they are posted on time.
2) Apply for a secured credit card. If you've just gotten out of bankruptcy, you probably don't have an open charge card and lenders probably won't want to offer you one. Secured charge cards are excellent because they're straightforward to get and are backed by your own funds on deposit with the credit card issuer. They work just like a regular credit card and can be used to build a good payment history.
3) Check your own credit frequently and repair any problems right away. Federal law entitles you to a free credit report once every year from AnnualCreditReport.com, but it's usually a good idea to check your credit file with greater regularity. Make sure you get credit data from all three major credit rating agencies agencies: Equifax, Experian, and TransUnion. If you find any errors, you'll want to contact the appropriate credit reporting agency and get it fixed right away.
4) Clean up charge offs and collections. Even if your bankruptcy wiped out all your debt, it's not unusual for old accounts to stick around as derogatory items like charge offs and collections. Even if you don't owe much and the account is old, it can still do damage to your scores and make it harder to qualify for a mortgage. It's often possible to negotiate down the balances to pennies on the dollar, but be sure you get any agreement in writing before you put a check in the mail.
5) Keep revolving account balances below 30% of the credit limit. If you carry large balances on your credit cards, the credit bureaus may see you as "maxed out" and rate down your scores - even if you never miss a payment. It's essential to keep your balances below 30% of your available credit limits at all times.
6) Check if your HELOC is reporting as a mortgage debt. If your home equity line of credit is reporting as a revolving account and you owe a lot on it, it could hurt your scores for the reason mentioned in the previous point.
7) Keep older credit card accounts open. If you still have older established accounts, don't be quick to close them out just because you don't use them anymore. Old accounts are helpful for your scores, so don't damage your credit history and scores by canceling old accounts.
8) Resist the urge to cosign. There's probably little point in trying to cosign right after a bankruptcy anyway, but in the future when your credit scores have recovered, one bad cosigning decision could destroy all your hard work and prevent you from getting a mortgage. We urge you to resist the urge to cosign!
It's worth noting that derogatory credit items such as collections and charge offs will stay in your credit file for seven years even if they're paid off. However, the impact they'll have on your scores will lessen over time. Bankruptcies stay on your credit for 10 years.
We also want to note the importance of living well within your means as you rebuild your credit. Sure, you need to use debt to rebuild your payment history, but use it wisely. Don't borrow unless you really need to, and don't borrow any more than you can repay easily and in a short period of time.
These tips will go a long way toward helping you rebuild your credit, but understand that it takes time. There's no quick fix, but with a little time and effort, you can get your scores back to where they need to be and more easily qualify for a great mortgage loan.
1) Make all payments on time. This is probably pretty apparent to most people already, but it's worth mentioning because it's super critical. If you went through bankruptcy, mortgage banks will want to see that you've developed good payment habits since then. Being late here or there could harm your ability to qualify for a new loan even if your credit profile is otherwise pretty good. Make sure you send in your payments well in advance of the due date so they are posted on time.
2) Apply for a secured credit card. If you've just gotten out of bankruptcy, you probably don't have an open charge card and lenders probably won't want to offer you one. Secured charge cards are excellent because they're straightforward to get and are backed by your own funds on deposit with the credit card issuer. They work just like a regular credit card and can be used to build a good payment history.
3) Check your own credit frequently and repair any problems right away. Federal law entitles you to a free credit report once every year from AnnualCreditReport.com, but it's usually a good idea to check your credit file with greater regularity. Make sure you get credit data from all three major credit rating agencies agencies: Equifax, Experian, and TransUnion. If you find any errors, you'll want to contact the appropriate credit reporting agency and get it fixed right away.
4) Clean up charge offs and collections. Even if your bankruptcy wiped out all your debt, it's not unusual for old accounts to stick around as derogatory items like charge offs and collections. Even if you don't owe much and the account is old, it can still do damage to your scores and make it harder to qualify for a mortgage. It's often possible to negotiate down the balances to pennies on the dollar, but be sure you get any agreement in writing before you put a check in the mail.
5) Keep revolving account balances below 30% of the credit limit. If you carry large balances on your credit cards, the credit bureaus may see you as "maxed out" and rate down your scores - even if you never miss a payment. It's essential to keep your balances below 30% of your available credit limits at all times.
6) Check if your HELOC is reporting as a mortgage debt. If your home equity line of credit is reporting as a revolving account and you owe a lot on it, it could hurt your scores for the reason mentioned in the previous point.
7) Keep older credit card accounts open. If you still have older established accounts, don't be quick to close them out just because you don't use them anymore. Old accounts are helpful for your scores, so don't damage your credit history and scores by canceling old accounts.
8) Resist the urge to cosign. There's probably little point in trying to cosign right after a bankruptcy anyway, but in the future when your credit scores have recovered, one bad cosigning decision could destroy all your hard work and prevent you from getting a mortgage. We urge you to resist the urge to cosign!
It's worth noting that derogatory credit items such as collections and charge offs will stay in your credit file for seven years even if they're paid off. However, the impact they'll have on your scores will lessen over time. Bankruptcies stay on your credit for 10 years.
We also want to note the importance of living well within your means as you rebuild your credit. Sure, you need to use debt to rebuild your payment history, but use it wisely. Don't borrow unless you really need to, and don't borrow any more than you can repay easily and in a short period of time.
These tips will go a long way toward helping you rebuild your credit, but understand that it takes time. There's no quick fix, but with a little time and effort, you can get your scores back to where they need to be and more easily qualify for a great mortgage loan.
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Have a bankruptcy or foreclosure on credit? Find out when you can purchase a home after bankruptcy and after foreclosure.
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