Establishing credit after bankruptcy may seem like an insurmountable obstacle, but this is not the case. This article will explain how insolvency affects FICO credit scores and then offers some free credit repair tips.
Bankruptcy and Credit Scores
The type of bankruptcy has a different effect on a credit score. Filing for bankruptcy under chapter 7 will show on a credit report for a period of 10 years. The time period reduces to 7 years with respect to chapter 13 because the debtor pays back some of the money owed.
FICO credit scores are made up of a number of different factors, including repayment history (35%) and the amount/type of debt (30%). Whilst filing for bankruptcy means a bad credit history, it also reduces the amount of unsecured debt. This part of the score actually improves.
It is arguable that, unless an income-to-debt ratio is improved, that person will inevitably affect their credit history in the near future. Affordability is inextricably linked with reliable repayment.
Establishing Credit After Bankruptcy
Whilst bankruptcy and credit scores plummeting do go hand-in-hand, this does not last indefinitely. It is possible to recover from most of the negative effects of bankruptcy in less than two years by following the free credit repair tips included below. Do not fall for sites offering to repair credit over night because this is not 'legally' possible.
Free Credit Repair Tips
Establishing credit after bankruptcy can be achieved by ensuring that the mortgage is paid punctually each month. FICO credit scores improve because each timely repayment is reported to the three major credit reference agencies (Experian, Equifax and TransUnion).
Whilst not everyone has a mortgage, there are other ways that this objective can be achieved. Establishing credit after bankruptcy is achievable by signing up to a bad credit unsecured credit card and making timely repayments on any money owed each month.
Apply for a free credit report and examine it for inaccurate data. It is believed that as many as 3% of all credit reports contain errors. It is possible to get these corrected by advising the credit reference agency and providing the appropriate support information.
Understanding bankruptcy and credit scores can open the door to recovery. Whilst there is no quick fix to establishing credit after bankruptcy, it is possible to make a full recovery over an extended period of time. The important thing is to get any errors corrected and make payment on-time each month. FICO credit scores will start to gradually improve with every passing month.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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