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Starting over after bankruptcy

Learn from your mistakes, says The Credit Guy

By Todd Ossenfort

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The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
Now that my bankruptcy is paid off, I am having a hard time getting started to re-establish my credit. What can I do? -- Yvette

Question for the CreditCards.com expert

Dear Yvette,
Congratulations on paying off your obligations through bankruptcy. Although it is more difficult to re-establish credit after a bankruptcy, it is not impossible. Patience and perseverance are all you need to achieve your goal of bettering your credit standing.

On that note, my first bit of advice is to seek post-bankruptcy counseling if you have not done so already. There are many outstanding educational courses offered, and this is a requirement of your bankruptcy discharge.  If the financial behaviors that caused your bankruptcy have not been addressed and changed, you are much more likely to end up in a similar financial circumstance as you were in when you filed.

Unfortunately, the lending community is currently in a credit-tightening cycle. They have stiffened their requirements for extending credit. But that shouldn't hold you back from beginning to improve your credit.

Options are available to begin the process that will not be influenced by the current credit cycle.

First, you could open a savings account with a bank or credit union and then take out an installment loan using your savings balance as collateral. Your best bet is to actually open and apply to your local branch office with an actual loan officer. Your sincerity for improving your credit score will actually come out in the interview with him or her.

The loan will require you to pay a regular monthly payment much like a car loan. This type of loan is one of the accounts that you want reported on your credit history. To that end, make sure the your lending institution you choose to open your savings account is reporting your account activity to the major credit reporting bureaus. 

Second, you could apply for a secured credit card. These cards are backed by deposits of your own money; the card limit will be whatever amount you deposit. You can use the card just as you would any other credit card and the account will be reported to the bureaus as a revolving credit account. Make sure to shop around for the terms that work best for you.

The above suggestions will help to re-establish your standing as a creditworthy individual as long as you make your payments on time and exactly as agreed. Don't expect to have a fully restored credit history in a matter of weeks. It takes time to improve your credit. Most potential lenders will put more emphasis on the most recent activity (past 24 months) in your credit history. So by adding positive information with your two new accounts, you are well on your way. Also, check your progress each year free of charge at www.annualcreditreport.com.

Be wary of credit offers that are too good to be true. Due to the fact that you filed and completed a bankruptcy, you are likely to get offers for credit from sources that seek out people in your situation. Don't apply just because you want to improve your credit. The terms of the credit may not be in your best interest and you don't want to have access to credit that you may not need, but would be tempted to use.

Take care of your credit!

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
Send your question to The Credit Guy.

Published: March 14, 2008


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