Written by North Carolina Bankruptcy Attorney
WAYS TO IMPROVE YOUR CREDIT SCORE
Q. Generally what affects my Fair Isaac Corporation (FICO) score?
A. Have you missed any payments? Late payments, collection accounts, settled accounts, reposessions, foreclosures, and public record items (tax liens, judgments, bankruptcies) can have a major negative impact on your FICO score. Even minor late payments, such as 30-day delinquencies, can negatively affect your score. Your payment history makes up the largest part of your FICO score, so the longer you pay your bills on time, the better your FICO score. Your score even affects your insurance premiums. Insurance companies often run your credit before writing and or reissuing your policy.
Q. How long does Bankruptcy remain on my credit report?
A. Typically, here is how long you can expect bankruptcies to remain on your credit report (from the date filed):
- Completed Chapter 13 bankruptcies up to 7 years.
- Chapter 11 and 7 bankruptcies up to 10 years.
Q. How long will foreclosure remain on my credit report?
A. A foreclosure remains on your credit report for 7 years as well.
Q. Are the alternatives to foreclosure any better as far as my FICO score is concerned?
A. The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all “not paid as agreed” accounts, and considered the same by your FICO® score. This is not to say that these may not be better options for you from a financial perspective, just that they will be considered no better or worse for your FICO score.
Q. How can I minimize the negative affect of a bankruptcy?
A. A bankruptcy is going to be factored into your FICO® score until it falls off of your credit report. While it may take up to ten (10) years for a bankruptcy to fall off of your report, the impact of the bankruptcy will lessen over time.
If you plan to file a bankruptcy, here are some things you should do to make sure your creditors are accurately reporting the bankruptcy filing:
- Check your credit report to ensure that accounts that were not part of the bankruptcy filing are not being reported with a bankruptcy status.
- Monitor your score and items on your report monthly.
- Make sure your bankruptcy is removed as soon as it is eligible to be “purged” from your credit report.
After a bankruptcy has been filed, the sooner you begin retaining or re-establishing credit in good standing, the sooner you can expect your FICO score to rebound. A good practice is to obtain a secured credit card and continually make all of your payments on time. As time passes and the impact of the bankruptcy lessens, you might apply for a traditional credit card and also continually make all of your payments on time.
Information taken from www.myfico.com
Q. How soon after bankruptcy can I obtain a loan?
A. Almost anyone can get credit soon after a bankruptcy. It’s just a matter of knowing how. Long before the bankruptcy drops off your credit report, you could be qualifying for loans with good rates and terms.
B. There is not an average time frame. As long as you are taking the steps necessary to rebuild your credit, you will see results sooner than later.
C. It will take two (2) years to qualify for an FHA loan and four (4) years for a conventional mortgage at an affordable interest rate.
Q. What steps can I take to rebuild my credit after bankruptcy?
A. Credit Report Check: One common problem people emerging from bankruptcy often face is that credit reports frequently show accounts as open and overdue — when in fact they were closed and the obligations wiped out as part of the bankruptcy. Your credit score is based on information in your credit report, so errors on your report can seriously dampen your score. Hence, you should see that these items are corrected. Banks report to all three credit bureaus (Experian, Equifax and Trans Union)
B. Obtain one or more secured credit cards. A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $100 in the account; you can charge up to $100. Do not use up the entire limit that you deposit. Using part of the limit is a good credit behavioral activity and will increase your score. You may be able to add to the deposit to add more credit and to cover any fees associated with the card. Sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits, essentially making your card unsecured. This will improve your credit score gradually. You may shop for prepaid cards here http://www.creditcards.com/prepaid.php. Be sure to ask the creditor if they report to the credit agencies before applying and using for their product. It is important that they do, in order to raise your score.
C. Stay current on your utility bills and other debts that resumed after the bankruptcy (i.e. student loans, mortgages, car loans), or were not part of the bankruptcy.
D. Be mindful of the purchases you make on your card: Behavioral scoring analyzes the behavioral patterns of consumers to determine credit risk – and if they’re viewed as a risk, credit card companies may choose to lower their credit lines. Here are a few items that credit card companies may use to profile you as a risk:
- Watch what you purchase. One characteristic of behavioral scoring is that banks are looking at the items and services you purchase and deciding on their own whether they are appropriate. If they determine that they’re not appropriate, or show you may be in financial distress, you may be viewed as a credit risk.
- Watch where you shop. Another characteristic is if customers shopping in the same stores as you have poor repayment histories, you may be punished as well – sort of a “birds of a feather” assumption. See http://www.consumerismcommentary.com/10-purchases-that-can-harm-your-credit/
For example, The FTC has filed suit against CompuCredit claiming did not properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls and marriage counseling offices. See http://www.ftc.gov/os/caselist/0623212/081219compucreditstiporder.pdf
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