Credit and Loans After Massachusetts Bankruptcy
We have been representing clients filing for Massachusetts bankruptcy for over 26 years. For the folks that qualify, even after the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, we regularly get the question: how can I increase my credit after a bankruptcy?
We have a web page entitled Life After Bankruptcy which addresses this issue. The web page outlines the percentages for each part of your credit score.
But what is happening now, in the real world? It is true that following a personal bankruptcy, your credit score goes down? First, what is a credit, or FICO, score? There are three main credit rating agencies. Each one is fed information by creditors such as credit card companies, banks, court filings and that, of course, includes, the United States Bankruptcy Court. FICO uses the reporting to come up with a score for each person that they have information on.
What happens to your credit score when you file for bankruptcy? These days, it looks like your score will immediately go down about 100 points. However, if you already have “bad credit” or a low score because of late payments, collections or adverse judgments, your score could go down more.
So, again, what do you do to improve your score? Apply for a secured credit card. Some credit unions are better than many commercial banks. There is a website called Credit Card Connection that seems to help folks find credit cards from credit unions. Start small.
If you have a savings and or checking account with that institution, you are more likely to get the unsecured credit card. Again, request a low amount. Pay it off, or pay off the minimum payment, immediately upon receipt of the bill. Your credit score is 35% based on payment history. Thus, regular payments indicate a positive score on over 1/3 of the overall score.
Here is another clue. Don’t apply for multiple credit cards at once. The lenders see the applications come up on the credit report and worry that you will have too much outstanding credit and may default again. They like to know they are the only one.
Further, pay off as much as possible. 30% of your credit score is based on the balance owed verses the total credit allowed. Thus, if you are given a $500 credit card, and you pay the minimum, you are ok. But, if you pay $400, the ratio is better and you enhance your credit score.
Joint credit cards or car loans can also help. Continued payment of preexisting loans, such as mortgages or car loans will also help; as per above, your credit history is a large percentage of the analysis.
If you have questions about bankruptcy, call Boston bankruptcy lawyer Neil Burns at 1-227-7423 for a free telephone or office consultation. The process is generally painless and you will get a “fresh start” in your financial life. And, as above, you can rebuild your credit by following a few simple guidelines.