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LIFE AFTER BANKRUPTCY
How to Reestablish Your Credit
by: Dick Piehl
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Many people say after their bankruptcy "I’m never
going to charge another dime in my life. I’ll pay cash for everything,
and if I can’t pay cash, I’ll do without it." Little do they know they
are shooting themselves in the foot AGAIN!! |
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Why Should I Reestablish My Credit?
One of the things many people are not aware of is that in order to get a
loan for anything, even fifteen years after a bankruptcy, the mortgage law
says you have to have reestablished your credit. If you always pay cash for
things, YOU HAVE NOT REESTABLISHED YOUR CREDIT. So what will that do for you
after fifteen years of paying cash for everything, even paying everything on
time? It means the lending institution looks at you as if you just got out
of the bankruptcy. You can tell them how great you have paid all your bills,
on time and everything. You might have even paid them all ten days early
just to make sure they were paid on time. Everyone will tell you "you’ve
done well, but what have you done to reestablish your credit??" Because, by
law, if you HAVE NOT reestablished your credit, you’re no better off than
the day you left the bankruptcy court. That means you probably cannot get a
loan for any reason. If you could, you’d be paying interest rates as large
as the Sun and Moon put together. But what is a person to do?
Disclaimer
First of all, remember, I am not an attorney or banker. I am a Mortgage
person, so I have a great understanding of how loans are given to people and
why they are given AND denied. I do work with many bankruptcy attorneys and
other para-legals so I have a fair understanding of bankruptcies. BUT
PLEASE, if you are ever in doubt, please contact a competent attorney. I
will be talking to you from a lender’s point of view, not a legal point of
view!!
Steps to Reestablish Credit
How does one reestablish his/her/their credit after a bankruptcy?? Remember,
it will take time. If you own your house and have a large equity interest in
it, it will be easier than if you own nothing. Here is how I explain to most
people how to start reestablishing credit (but if you have a large equity
ownership in your house, call me fast, and we can skip a lot of this)!!
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First of all, you should try and save $250
to $500. Once you have that, I want you to go to your local bank, tell
them you want a "secured line of credit" and get a Visa or MasterCard
Charge Card (if they will not do it, contact one of the companies we have
listed in this website). Many of them will give you a credit line of 25%
to 50% more than what you deposit. (Also, most companies want you to have
reestablished at least three to five new accounts of $500 or more. So if
it takes you a month or so to save up the money for this account, you
might be better off to wait until you have the $500).
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After you have gotten your card, now is the
time to use it. I know you are probably sensitive about using it because
of the bankruptcy. But if you do not use it, you will loose it (or its
effect). Go to a department store and charge about $100 worth of items, (I
know you can afford it). Wait ten days and return it. They will not give
you cash because they will see it was charged and they will give you
credit towards your account. When it shows up on your credit report, it
shows you made a purchase of $100 and a payment of $100. It does not show
it was returned. (All the department stores will go nuts when they read
this. Please try to remember which stores were nice to you about returning
things and go back to them to shop when you are back on your feet again.)
Do this for about three months to make sure it shows a good pattern of
payment history on your credit report.
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Next, go to a department store or two and
get a credit card based on your good payment history with the MasterCard
or Visa. Most card companies do not show it as a secured line of credit.
Even if they do, a good payment history is what matters. Get two or three
new lines of credit based on your secured line. (Remember… do not tell
them it’s a secured line of credit. Do not lie, but don’t volunteer the
information.)
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Once you have gotten three or four other
credit cards (department stores, gas cards, etc.) it is time to try to get
a regular Visa, MasterCard, Discover etc. It is to be hoped that by now,
you have five or six lines of credit that are SPOTLESS WITH NO LATE
PAYMENTS. You should be ready to get back into the world of high finance.
Even if you never plan on borrowing another dime in your life, at least
you are ready to face the world on it’s terms. If you suddenly find you
are in need of an operation and you have to pay cash, which you don’t
have, you stand a real good chance of going to the bank and borrowing some
money. Or if you want to buy or refinance a home, you will be able to do
so and the interest rate will not equal the national debt.
The Payoff
Even if you never have to borrow another nickel in your life, by following
these simple steps you would be able to do so if you had to. Many people say
they will never borrow money again, so they do not reestablish their credit.
Then, for some reason THEY HAVE TO, but they cannot because they have not
reestablished their credit. It is better to be safe than sorry!
Where to Get More Help
If you have any comments, questions or input, please contact me by email or
by phone. Remember, it’s a lot easier to get reestablished if you have
substantial equity in your home. Call me for further details.
Good luck to you in the future!!
Dick Piehl
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