Although necessary at times, filing for bankruptcy can be a painful experience. After bankruptcy, many people still want to obtain a mortgage. While the mortgage process usually requires a good credit report and lenders can view bankruptcy on a credit report as an adverse incident.
While it may be a challenge to obtain new credit to help rebuild credit reporting, it is possible. The following are several suggestions on how you can improve your credit after filing for bankruptcy.
Ways to Improve Credit Scores
With a secured loan, you can slowly start to rebuild your credit. A secured loan is a credit product backed with some collateral. Examples of collateral are vehicles, real estate, bank accounts, and insurance policies. If the borrower does not pay the loan back on time, they risk losing the collateral.
Secured credit cards are like secured loans, except the card is backed by a cash deposit. The limit on the credit card may depend on the amount of the cash deposit. The cash deposit can pay the bill if the borrower does not pay. Sometimes secured credit card companies will change the card to an unsecured status after 12 months of excellent payment history. However, with a secured credit card, fees and higher interest rates can apply.
People may be able to find a cosigner for a credit card or loan. There is a risk to the cosigner because they are putting their credit score on the line. Another option is to become an authorized user on a credit card as long as the lender reports this information to the credit bureaus. Although not as influential on credit reports as cosigner status, this method can be helpful.
Mortgages Requiring lower scores
Qualifying for a mortgage loan with a traditional lender can be difficult, but an FHA (Federal Housing Authority) loan is easier to get than other mortgages. Most mortgage lenders require a waiting period after the bankruptcy filing to apply for a loan. There is no waiting period for Chapter 13 bankruptcy and a two-year waiting period for a Chapter 7 bankruptcy with an FHA loan. FHA loans also have fewer credit requirements.
It is possible to live an entirely healthy financial life after filing for bankruptcy. Practicing good credit habits will allow people to build for the future and eventually obtain a new mortgage.