The Best Way to Repair Your Credit After Bankruptcy

Credit repair companies are known to play on your fears that bad credit will stand in the way of your dreams. They'll make you think that bankruptcy is the end of the world. 

Improving Your Score After Bankruptcy

The truth is, filing for bankruptcy can actually raise your credit score. The reasons are pretty simple: (1) after bankruptcy, you likely won't owe money to anyone (other than non-discharged tax debts, student loans, or domestic support obligations), (2) new lenders know that you don't have any open accounts you can use, and (3) you won't be able to file bankruptcy again anytime soon. 

When you take these these three factors into account, you’re a better credit risk after bankruptcy than you were before you went into the process.

BUT, your credit score will not improve if there are errors on your credit report.

Check Your Credit Reports After Bankruptcy

About three to four months after bankruptcy, go to AnnualCreditReport.com to get free copies of all three of your credit reports. If you find any errors, it's important that you take some simple steps to correct them. TIP: remember to save or print each report right away, otherwise, you might have to pay for a second look.

Once your bankruptcy case ends, all debts need to be updated to show a $0 balance due. If something doesn't look right, send a "dispute" to the credit reporting agency. Follow the instructions on each credit bureau's website - look for a link on the home page marked "Disputes". Follow the instructions carefully and send a copy of your bankruptcy discharge papers if requested.

Send the letter by certified mail. Keep a copy of the original signed letter and the certified mail receipt card. The credit reporting agency usually responds in 30-60 days, but it could be a longer or shorter.

You have now saved yourself a lot of money and time because you did it without hiring a credit repair company.

Why You Don't Need to Hire a Credit Repair Company

Frequently, the credit repair agencies simply complete the above steps and charge you a pretty penny to do it. It's just not worth it when the relatively simple process is explained on the credit bureau websites.

Worse, though, are those credit repair companies that don't follow the dispute mechanism through the credit reporting agencies. Instead, they send the disputes directly to the individual creditors. This can cause a short-term credit improvement. But the creditors can later upload another set of data to the credit reporting agency that reinstates the debt on your report. In other words, the credit repair agencies only fix things temporarily. This is a tactic many credit repair agencies use to temporarily remove accurate debt information from your credit report. But the bad marks will eventually reappear. 

About the author: Dan Cooke

Image credit: CafeCredit

Life After Bankruptcy - What's in Store for a Recent Filer?

What will your life be like after filing for bankruptcy protection? You've probably heard the words "fresh start" before. But what do those words mean when it comes to the nuts and bolts of living with a recent bankruptcy on your credit reports?

Here are some of the changes you can expect.

YOUR CREDIT SCORE WILL IMPROVE

Perhaps the thing that surprises people most is the improvement in their credit scores. According to a recently-published statistical analysis by the Federal Reserve Bank of New York, bankruptcy filers saw an improvement in their scores in the first year after filing. This is largely because filers have a much better debt-to-income ratio after their old debts are eliminated.

Things can get better even faster if you take steps to clean up your credit after bankruptcy.

SOME DEBTS MAY LINGER

With some exceptions, your student loans and income tax debts will not be discharged. And you will still be obliged to pay any domestic support obligations. BUT, you will undoubtedly have more money to devote to those payments after a bankruptcy discharge because the bankruptcy will take care of the other debts that have now been eliminated from your ledger. You won't have to worry about the other bill collectors and you can often arrange for reasonable payment plans on any non-discharged debts.

ALL THOSE UNPLEASANT CALLS AND LETTERS STOP

Once your bankruptcy is filed, your creditors and bill collectors are all notified and must immediately stop calling. Any wage garnishments stop any any lawsuits go away. And your mailbox is no longer something to fear.

YOU WILL HAVE AN OPPORTUNITY TO SAVE FOR THE FUTURE

If you've been working hard to pay your debts, you're going to suddenly have some extra cash flow. My advice? Save it. The best way to avoid going back into debt is to put away something each month - ideally in both a short-term savings account and in a retirement account of some kind (set up an IRA if you aren't eligible for an employee plan). A recent bankruptcy filing can clear the way for you to gain a better sense of financial freedom by creating a rainy-day fund.

About the author: Dan Cooke

Image credit: Cafe Credit

The Right Way to Monitor Your Credit

2014 was a banner year for huge consumer data breaches. From news of the Target attack in January to the massive Home Depot credit and debit card thefts, we all learned that identity and credit card theft is becomming a bigger and bigger problem for all of us.

Retailers commonly respond to data breaches by offering free credit monitoring services. Do they help? Maybe, but probably not as much as you think. They will help if it is too difficult for you to look through your own free credit report and make sense of everything listed in the report. While some of the services offer identity theft insurance, most of that coverage only duplicates coverage consumers already have, under existing laws or credit card zero liability rules.

The monitoring services normally do not tell you if a new wireless service has been taken out in your name, and they do nothing to monitor your bank accounts or retirement account transactions. They also don’t watch for fraudulent charges on your existing credit card accounts. And they don’t stop tax fraud, medicare fraud or Social Security fraud. The monitoring services will not alert you if a bad guy uses your social security number to nab your tax refunds.

In short, the credit monitoring services will only catch a small percentage of the crimes that can be committed with a consumer’s identity. And the free credit monitoring services might also give you a false sense of security, leading to further problems if you don’t take other basic steps to protect yourself.

So what can you do? By all means, review your credit card and bank account statements on a monthly basis. You should also check your own credit report every four months - it’s free. Make sure to clean up any errors you find. If you’ve been victimized in the past, you should also put a free 90-day fraud alert on your credit file. You can do this simply by filing a fraud alert — sometimes called a “security alert” — with any of the three major credit bureaus: Equifax, Experian, or TransUnion.

Another, even more secure option is to place a full security freeze on your own credit, which prevents anyone from opening a new account in your name (you can lift the freeze temporarily for your own needs with a PIN if you need to legitimately open a new account). The standards for placing a freeze vary by State - in Minnesota there is a $5 fee. Finally, consider opting out of unsolicited credit card or insurance offers to prevent mail thieves from using them. 

If you elect to have credit monitoring, there are free services available, such as Credit Sesame or Credit Karma. But remember that you cannot rely on credit monitoring alone.

Is some of this a pain in the rear? Sure. But once you get in the habit of checking your bank account statements, credit card statements (at least monthly) and credit reports (at least every six months), you’ll find that it’s an easy way to protect yourself.

About the author: Dan Cooke

Image credit: Simon Cunningham

The Best Way to Clean Up Your Credit Report

Think paying your bills on time is all you need to do to ensure a good credit score? Think again.

More than one in every four credit reports contains some sort of error, according to a study by the Federal Trade Commission. And 5% of those errors, when corrected, placed the person in a different credit risk tier.

Every adult - and by that I mean everyone, not just those with debt issues - should check their credit reports once a year. It is incredibly easy to check your own report. It is also free if you check your report through the AnnualCreditReport website (steer clear of other "free" credit report sites that may try to charge you for other services you don't need).

Credit reports aren't that hard to read. If you find something on the report that looks like it might be an error, fix it right away. Here's the best way to do that:

1. Contact the Credit Reporting Agency. There are three major credit reporting agencies: TransUnion, Equifax and Experian. They all provide ways to dispute errors through their websites. But I've learned that contacting them in writing can be more effective. The FTC has a sample letter you can use. Include your full name and address and say exactly which item on your report you dispute. Include a copy of the report with the wrong item circled. You can also include a copy of any supporting documentation you have (such as a receipt or billing statement). The credit reporting agency must investigate your claim and report back to you with written findings (you can expect this to take two months). They'll also provide you with another free copy of your report if a change was made. They'll also tell you where the incorrect information came from, which you can use to...

2. Contact whoever provided the bad information. Once you know who provided the bad data that messed up your report, you should contact them in writing as well. Otherwise, they might make the same mistake all over again the next time they report your history to the credit bureaus. You can use the same FTC sample letter, just change the name and address of the recipient.

3. Follow Up. If the Credit Reporting Agency does not fix the error, you can ask that a statement of the dispute be included in future reports. The sad reality is that the big reporting agencies will sometimes deny a fix. If this happens to you, it may be time to call a lawyer who can help with Fair Credit Reporting Act (FCRA)violations. Hopefully you won't need this, but if you do I can offer a free consultation about your FCRA issue and your rights under the law.

The FTC also provides answers to some common questions about credit reports, which is a great place to learn more.

You want an accurate credit report not just so you can get loans and better interest rates. Your credit report might also be reviewed when you apply to open a bank account, rent an apartment, in insurance applications, or even by potential or current employers. So set aside a few minutes each year to get a free credit report and check it for errors.

About the author: Dan Cooke

Image credit: 401(K) 2013

Why Bankruptcy Doesn't Ruin Your Credit

I've heard it time and again: "I can't file bankruptcy because it will ruin my credit! Won't it?"

No. Life goes on after bankruptcy and you will almost certainly be able to borrow and finance consumer purchases or even business investments afterwards. Most folks receive credit card and car loan offers shortly after filing. It is not unusual to qualify for a home mortgage loan - or a refinanced home loan - within two to three years of filing. And the repayment terms on these post-bankruptcy loans can be solid if you can wait a couple of years before borrowing again, using that time to re-establish your creditworthiness.

Bankruptcy does not ruin your credit. Plain and simple, what hurts a credit score more than anything is not paying bills. And the remarkable thing about bankruptcy is that it makes the dischargeable bills go away. You cannot be late on a bill that has a zero balance. There are credit consequences to filing bankruptcy. But for people who need help with overdue or unpaid bills, bankruptcy normally ends up helping their credit scores in the long run.

Think about it this way. The banks that lend money have one primary concern. They want to know if you will pay them back. If you ask for a loan while you already have tens of thousands of dollars in debts the bank knows that any loan they give to you will be only one of many that you have. The bank does not want to stand in line with everyone else that you owe. If, on the other hand, you just filed for bankruptcy the bank knows that any of your prior discharged debts are no longer due, making it much more likely that your new loan will be paid. Plus, the bank knows that you cannot file bankruptcy again anytime soon, making it very unlikely that the new loan will ever be discharged in bankruptcy. This makes you a better credit risk AFTER you file than you were before you filed.

The record of your bankruptcy filing will be on your credit report for some time (current laws require a Chapter 7 to be removed from a credit report after ten years). But the report will also show how long ago the bankruptcy was filed. Lenders place less importance on an older bankruptcy IF you have been good about paying bills on time after your bankruptcy was filed.

With some careful post-filing credit repair steps, a FICO score in the high 600s or low 700s is achievable within 18 months to two years of a bankruptcy filing. Lenders differ on how they use FICO scores but many treat a score like this as a high or "A-level" rating. 

How do you repair your credit after bankruptcy? Simple. Pay your bills on time. As time passes you'll build up better creditworthiness. We work with our clients to give them guidance tailored to their situation to help them repair their credit after filing.

There are, of course, other factors that will play into the decision to file. But when making the decision it is important to know that a bankruptcy will not ruin your credit. Over time it can actually help.

About the author: Dan Cooke

Image credit: 401(K) 2013