Rebuilding Credit After Personal Bankruptcy
Rebuilding Credit After Personal Bankruptcy If you've been through personal bankruptcy, you're all too familiar with the fact that your Beacon score is shot and the need you have to try and rebuild credit as soon as possible. The question is: What can you do ' and how long will it take?
Even though you've swallowed your pride and filed for personal bankruptcy protection, that does not mean that you will never again qualify for credit. With that said, your credit score is in the tank for the foreseeable future, and the best way to bring your credit life back from the brink of death is through the responsible use of credit cards.
First, there are two basic categories of credit cards that you're going to want to explore. Each has its pros and cons and I'll briefly explain both so you can decide which option makes the most sense to you ' and your financial goals.
Unsecured credit cards ' As the name implies, unsecured credit cards don't provide any security to the issuer that you will make your payments. As a result, many of these cards have annual fees ranging from $39-$150 per year as well as extremely high interest rates and fees.
In addition, they will frequently charge a monthly participation fee ' and most also have substantial service charges that many other cards do not. While your initial line of credit may be in the range of $300-$500, your available credit will be offset by the annual fee, set up fees, and authorized user fees.
Secured credit cards ' On the other hand, secured credit cards offer your lender a great deal more assurance that you'll make good on your promise to pay, because you'll be required to open a savings account with the card issuer to guarantee that they'll be paid in the event that you default.
Once the account is opened, your credit card account will operate just like a standard credit card. The only difference is that your security deposit acts as a kind of security blanket for your lender.
A major benefit to having a secured credit card is that you have the security of knowing for sure that your credit card account will be paid off in the event that you run into further financial difficulties.
Whatever you do, don't make the mistake of thinking that you don't need to make monthly payments to your credit card company because you have a savings deposit to guarantee your account. This savings deposit will only be utilized if you default on the card.
Your credit limit will normally be equal to your savings deposit balance, so if you have $500 on deposit, that will be your credit limit. If you want to increase your credit limit, it's as simple as adding to the funds you have on deposit.
As you demonstrate your ability to make timely payments, your credit card company will periodically review your credit report and may grant you occasional increases in your credit line without requiring an additional deposit.
After a period of time, usually within a year or a year and a half, they may even be willing to return your initial deposit and convert your secured credit card account into an unsecured one.
Deciding which card is best for you is a very personal decision and can best be answered by a properly analyzing your current financial situation.
If you lack the resources to fund a savings deposit and can stomach the idea of paying higher ongoing fees to the credit card company, an unsecured card might be a viable option for you. However, if you don't trust yourself to be responsible with credit you should opt for the secured card ' or not get a card at all.
The length of time it takes to fully resurrect your credit will depend upon a variety of factors, including how bad your credit was before you filed for bankruptcy, your income, and what your debt to income ratio looks like.
You should be able to get the process started as soon as your bankruptcy has been discharged and ' depending upon your level of responsibility ' could be well on the path to good credit within 6-12 months.
Personal bankruptcy was intended to help you claw your way out of debt and rebuild credit, so be exceedingly careful as you begin heading down the road towards resurrecting your name, Beacon score, and financial reputation.
About the Author:
Darrin Roseborsky is a Refinance Specialist with OMAC Mortgages, seminar speaker and president of the Roseborsky Group and HomeRefinanceCoach.com. Darrin shows people how to MAXIMIZE their equity PROPERLY and how to choose options that make the MOST SENSE for their situation! An example of exactly how this works, is at: www.homerefinancecoach.com
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