As if bankruptcy wasn’t a tough enough event to go through emotionally, mentally and financially (for better or worse), after your case is discharged and your debts are no longer considered a liability there is still a lot left for you to take care of if you want to get back on your (credit) feet quickly.
Here are a few steps you can take post-bankruptcy to help your score take a big step forward!
*These recommendations are based off of a standard Chapter 7 bankruptcy. As with everything, consult your attorney with any questions and remember every person/situation is different.
1) Never too early to try and obtain a secured credit card.
Chances are pretty slim you’ll be able to be approved for an unsecured card right away (though you may receive offers, just make sure the offer says ‘pre-approved’ and not ‘pre-qualified.’ Pre-qualified typically results in a turn-down and just adds an unneeded inquiry (which affects you negatively). If you have a firm discharge date assigned, you can probably apply a couple weeks prior to it becoming final, which means the following month or 2, you’ll already be adding a positive trade line. Just make sure to keep the account current! Also, auto loans offers will probably FLOOD your mailbox. Be conservative in which amount you will be approved for, regardless of how much they say you may be approved for. Chances are you’ll have to provide proof (paystub and/or a W-2) to show how much car you can handle payment-wise. Don’t get over your head. You’ll probably end up right back in the same situation. And there’s no way out of it this time. BE SMART!
DID YOU KNOW?
A secured card more often than not reports as unsecured. This carries a more positive effect than an account reporting as secured.
2) Be aggressive in having your accounts reflect the bankruptcy.
The accounts that were included in your bankruptcy will remain on your report (very rarely they will automatically be deleted as if they never happened. Though it is possible various collection accounts may be deleted post-discharge) for upwards of 7-10 years, but if they reflect ‘included in bankruptcy’ they carry a lot less weight (negatively) on your report. Ask your attorney to provide you with a one page notice of your filing/case being completed, and that’s what you need to make a copy of and include that in your letter notifying the creditor that everything is finalized and they need to update your account. Probably 99% of the time they’ll do it right away, though it can take up to 90 days from them receiving your letter. And sometimes you may have to follow up with the creditor a second or third time. It also helps tremendously to contact the credit bureaus with this notice/letter to update, as they’ll contact the creditor as well.
3) Asking the creditor to remove late payment history, take the account out of a derogatory state or delete the trade line completely.
Cannot stress enough that this is a pretty rare event, but it can be accomplished. Towards the bottom of your report you’ll notice the contact information for each creditor. Most list a phone number so you can contact them directly, but sometimes you may have to write. Best thing to do is search for SOME sort of number for the creditor (Google it if needed), contacting them, and if they can’t help… Get the address to contact them then.
DID YOU KNOW?
When you are contacting by phone (no matter how you obtained the number), you may have to be a little insistive or have to be transferred (be given a phone number) to the right department that can help you. Be patient. It’s obviously worth it. Typically the right departments are: Derogatory accounts, charged-off accounts, collection accounts or bankruptcy accounts. If you’re asked why, just say ‘I need to speak with someone that can update my report.’ Once connected explain to them your particular want/need and if they can – at the very least – Report your account as paid or closed (as opposed to derogatory) since it truly is resolved. They may ask for a copy of your credit report and/or proof of your discharge (just the one page letter from your attorney should be good enough) to be faxed, emailed or mailed to them. We’ve also heard of cases that you can offer them some sort of monetary settlement (since they did take a total loss on the account), to delete the account from your report completely. Legally or at the very least ethically it’s unsure how great of an action this is, so please operate on your own will. Once again, all these examples are not guaranteed to be effective AT ALL, but it may be worth trying. Every little bit helps.
The most Damaging action to your report is the bankruptcy itself. This is considered a public filing and will not disappear from your report for 7-10 years (depending on your state’s law). It’s pretty much unknown how much (if any) damage each individual account that reflects the bankruptcy hurts you, but the most important thing is getting those accounts to list the discharge. Doing that removes any responsibility for you. A stronger negative mark may be the reporting of late payments on the account. Typically the accounts were reporting late prior to the bankruptcy, and those lattes may hurt your profile until the 7-10 years (when the account disappears from your report) has passed. The other (and most common) damaging refection may be the first 2 years since the last late payment. That usually hurts the most.
The MOST IMPORTANT THING TO DO is keep the account(s) current, you don’t abuse the account(s), and don’t over-apply (avoiding inquires). Don’t be discouraged if all you are approved for are secured accounts or being approved for a low limit for the first 2-4 years. Remember: You are getting a second chance and you have to regain the trust of certain (if not all) creditors. Also, some banks may not approve you (if ever) as long as that bankruptcy appears on your report. Best thing to do is calling their approval/legal department once you have a pretty good score/track record and asking them if it’s even worth applying for an account due to their bankruptcy standards. That way you’ll avoid an inquiry. This hurts your report usually.