Home Savings of America

Life After Bankruptcy

A recent bankruptcy may not prevent a borrower from getting a mortgage. The most important thing for a consumer to do after a bankruptcy is re-establish credit and stay current on all tradelines (accounts). Many lenders will finance a borrower one day out of bankruptcy.

Once you include a tradeline in a bankruptcy, the history that goes with that tradeline is lost. Fifteen percent of your credit score is based on the length of your credit history. If you are thinking about filing bankruptcy, you should try to keep at least one of your tradelines current and exclude them from the bankruptcy. Some lenders require at least one tradeline to have a 24 month history. If all your tradelines are included in the bankruptcy, you would need to re-establish for 2 years to be eligible with that particular lender. When you limit the lenders, you limit your chances of getting the best interest rate and loan programs.

If you have already filed bankruptcy, you will need to focus on re-establishing your credit and staying current on those accounts. This may seem like a catch 22. The key to re-establishing credit is to apply for secured tradelines. Avoid applying for unsecured credit cards right after a bankruptcy. Chances are you will get turned down and may have lowered your score because of the credit pull.

Many banks offer secured credit cards where you secure the credit limit with your own funds. For example, you may be required to send them $500 to secure the account. You will then have a credit card with a credit limit of $500. It is very important you keep your balance below 30% of the credit limit. In this case, stay below $150 at all times with your balance. The best way to use this card is to charge an item, put the card away and then make minimum payments until the balance is paid. Yes, you will pay a little bit of interest, but by putting the card away, you eliminate the temptation of using it for an impulse purchase.

Some banks offer other options such as CD's that allow you to borrow against the CD. For more ideas about improving your credit after bankruptcy, contact a loan officer.