Rebuilding your Credit After Bankruptcy & Debt Settlement

What can the consumer do to rebuild his/her credit after bankruptcy or doing a debt settlement program?

The consumer can start with the credit report. Make sure to clean it up and then slowly build it up by adding positive information, like the following:

• The consumer should keep abreast of his/her credit report status. Sometimes it shows that the consumer missed out on a payment when he/she really pays on time. If this happens, the consumer should send the credit bureaus his/her recent account statements and also copies of canceled checks as proofs of his/her good payment history. Request for those information to be added to the report. Be sure to be thorough.

• What are the mistakes that the consumer may find in his/her credit report?

• Error and/or incomplete information on name, address, phone number, birth date, Social Security number, and/or employment.

• Unidentified bankruptcy chapter number.

• Incorrect or misplaced accounts (might not be owned by the consumer or lawsuits in which the consumer was not involved in).

• Incorrect entries about the consumer’s account history (late payments might be listed in the report when the consumer actually always paid on time).

• Out of date accounts ( there might be accounts that are listed as open but were actually already closed)

After reviewing the information, the consumer can then complete the disputed items form from the credit bureaus. He/she should list down each incorrect or out-of-date item and explain, in writing, exactly what the errors were. The credit bureaus would contact the consumer within 30 days after they are done investigating on the items that were disputed. Once proven correct, that clearly some of the information were inaccurate, or if the bureaus can no longer verify the information with the creditor, they are going to remove the information from the report or correct the mistakes based on the results of the investigation.

• Another positive information that creditors look out for is evidence of stability, the consumer’s credit report should contain the following information:

o The consumer’s previous and current employment
o Present home address or current residence, home phone number (especially if it's unlisted), date of birth, and checking account number.

How can the consumer clean up the credit report?

The consumer should contact the three major credit bureaus, to order copies of his/her report, for the purpose of reviewing it for errors and requesting for its update.

How to obtain the credit report:

The three major credit reporting companies have different information about the same consumer. It is best to order from all three: Equifax, TransUnion, and Experian.

Are there any requirements in obtaining one?

The consumer needs to provide the following information: name, address, Social Security number, and date of birth. In the event that he/she moved residence in the last two years, the previous address may also be needed.

The credit report is a very personal and important paper so the consumer may also be asked to confirm his/her identity, by providing information that only he/she knows. The questions may range from how much the consumer is paying for his/her monthly mortgage payment to the names of his/her children, etc.

Does it have a fee?

The consumer is entitled to a free credit report each year (from each of the three major credit reporting companies) plus an additional copy, but there are qualifications. If the consumer did not qualify for that free report (especially, if he/she has already ordered his/her free report for the year), then he/she would have to pay more or less $10 depending on which state he/she is.

What are the qualifications?

• The consumer was previously denied credit (application) because of some incorrect information on his/her credit report.

• The consumer is unemployed and is currently looking for work.

• The consumer is receiving public assistance.

• His/her file contains unexplained errors that he/she believes to be due to fraud or identity theft.

• The consumer has been denied employment (or is a victim of post-bankruptcy discrimination) because of some inaccurate information contained in the credit report.

How can the consumer regain the creditors trust?

It may take a while to re-establish the creditor’s trust, but the consumer can start with the following to gradually get up financially:

1. Secured Credit Cards

Securing a credit card is one of the most effective ways to get creditors confidence back up. The amount deposited is going to be the consumer’s credit line. For example, if the consumer deposited a $500 amount, the credit line is also $500. Secured credit cards encourage consumers to increase their deposit to extend their credit line.

2. Store Cards and/or Gas Cards

A store card or a gas card is not hard to acquire but it requires for the consumer to use them monthly and pay them as often. If that is not possible to pay them fully, the consumer may use them and at least pay above the minimum amount. It is not advised to use more than 50% of the credit line on the same purchase. Higher credit is approved once the consumer has proven credit responsibility.

3. Savings

The consumer should open a new savings account and must try never to lean on the credit card again. Once the consumer has successfully opened a new savings account, he/she must consciously deposit monthly to accumulate funds or save, and never charge for anything anymore. The consumer may even apply for a loan using the savings as collateral. This account will also help the consumer acquire a secured credit card.

4. Payments on Time

There should never be any delay in any of the monthly payment obligation again; it is one habit that needs to go.

5. No Extra Credit

Be mindful of the debt and income ratio. Also do not take out any payday loans so soon after the discharge. Spend within the means, and prepare a list or budget for household expenses, as also some treats for the kids.