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Repairing Your Credit After Bankruptcy Part Two

10/13/2008

In my previous article, “Repairing Your Credit After Bankruptcy Part One” I went into some detail about how we cleaned up our credit reports after our bankruptcy, and established new lines of credit. In this article I’ll dish some of the secrets of how we continued to raise our credit scores despite having a bad credit history.

After my husband and I established our new lines of credit (two credit cards each) there was still a long way to go. The most important thing to stress here is that credit scores take time to rebuild. We didn’t bounce back from our bankruptcy overnight. In fact, we still have not completely recovered as far as our credit scores go, but we are better off than we have ever been. In another couple of years, we should be able to pass all but the most stringent lending qualifications.

So, that said, here’s the rest of the story:

1) I accepted the fact that raising my credit score was not going to be cheap. See, the thing is, when you have great credit, you can save money. The worse your credit is, the more simple credit – any type of credit will cost you. Whether that is in increased interest rates, or fees tacked onto credit cards, it’s pricey.

2) I accepted the fact that in order to build my credit score, I was actually going to have to use credit, and use it responsibly.
It is very, very common for people coming out of bankruptcy to stop using credit altogether. Especially if the credit cards are what led to their bankruptcy in the first place.

If you choose to do that (and it can sometimes be the right thing to do!) you will have to accept the fact that it will take 8-10 years, instead of 4-5 years to be able to get a reasonable home or car loan.

3) I began monitoring my credit reports and scores regularly – This is not cheap. At a minimum it’s $30 a month, and usually more depending on which scores and reports you want access to. I chose to do this because I wanted to know exactly what impact my actions were having on my credit score. There was no point in paying high interest, or yearly fees on a card if the card was not raising my score.

I will continue to monitor my credit, probably forever. Not just because we are in the process of repairing our credit, but because I will never have to worry about my identity being stolen, or about bad information being put onto my report. Heck, my credit report looks bad enough, I don’t need the credit bureaus making mistakes and lowering my score instead of raising it. Monitoring my credit score also lets me check up on my credit cards. Since they are cards designed for rebuilding credit, they are supposed to report my regular payments to all three credit bureaus. Since I do monitor my credit reports, I know when they do report, and when they don’t.

4) I worked hard to educate myself – Obviously, since I went through bankruptcy, I didn’t have the right knowledge or attitude. I didn’t know what I was doing financially, and worse, I developed a pattern of ignoring my finances over several years. (Bills came in, and into a drawer or the trash…sometimes not even opened because I just couldn’t stand to look at another bill we couldn’t afford to pay.) And yes, with that attitude, it’s no wonder we ended up bankrupt. I know that now – I couldn’t deal with it then.

So, I read every book on money or credit that I could get my hands on. I checked them out from our library, asked friends for recommendations, everything. I’m happy to say that some of it did stick with me, and moving forward got a lot easier.

I also looked into several “repair your credit after bankruptcy” seminars and such available online, but the only one I liked was over $500! Can you believe that? Charging newly bankrupt people $500 to learn how to repair their own credit?

Let me tell you honestly, that information is out there for free. Heck, most of it’s right here on this blog! Don’t pay for stuff like that, please. Do yourself a favor and spend some time reading instead. You can figure things out for far less than $500. Don’t let your misfortune make someone else rich any more!

5) I keep the balances on my cards low, and I make my payments on time, every time –
This really is the secret to great credit. Don’t have more cards than you can manage, charge less than 20% on the card each month, and pay the full balance on time each month.

Now I realize that some of you out there cannot do this yet. I’ve been there, I understand, believe me. If you have cards which are charged up, and you cannot pay the full balance off yet – that’s ok. It really is. Just pay them down as quickly as you can. The sooner you get them under 30% of the available balance, the sooner your credit score will go up. There’s no race. You have all the time you need to do this – just set it as a priority, pay more than the minimum, and stop charging for now.

6) We purchased a proper amount of health insurance – since not having adequate health insurance was the biggest cause of our bankruptcy, it was one of the first things we changed once our bankruptcy was discharged. I never again want to be afraid to go to the hospital if I , or my husband needs to go. I never again want to be turned down for treatment because the physician knew I had no insurance.
Health care is expensive, there is no way around it. But it is far more expensive not to carry any sort of insurance at all!

We are only thirty – we thought we had plenty of years before health insurance deserved a place in our budget. We were wrong about that. And if you are out there, right now, with no insurance, please, do whatever you can to get some sort of coverage. No one can see the future.

And that, in a nutshell, is what we’re doing to rebuild our credit. It’s not hard. Nothing earth shattering. You can do it too, no matter what your credit score is.

The hardest part about repairing our lives after bankruptcy wasn’t getting the finances straightened out. That just required a little work and some education.

No, the hardest part is changing the mental attitudes my husband and I have. The “We deserve to be poor” attitude. The “I’ve always done things this way, so I’ll keep doing them this way” philosophy. Well, our past attitudes put us into debt. Put us into bankruptcy. No matter how well we might understand the physics of money management, the emotional side has been the hardest for us to change.

I do welcome your questions! Please feel free to leave me a comment below. Thanks!

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