Life After Bankruptcy: Chapter 7 vs Chapter 13

Consumers often get confused as to what the difference is between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy. The difference is simple. In a chapter 7 bankruptcy the consumer pays absolutely nothing back prior to filing for bankruptcy and in a chapter 13 scenario the consumer attempts at paying back part of the debts owed. However, there is still uncertainty as to the effects and impacts of the each on individual credit reports. It however may interest you to know that it is possible to rebuild credit after bankruptcy and it is possible to get back on your two feet. However is is essential that you take the right steps.

Rebuild Credit After Bankruptcy

In order to rebuild credit after bankruptcy, you must work on your credit report in a systematic manner.Make an attempt towards obtaining credit after bankruptcy and it will help you a long way in improving your credit score after bankruptcy.

1. Obtain Your Credit Report: After being discharged from bankruptcy, it is advisable to obtain your credit score to gauge your credit score at the point in time. It may surprise you but clients have been known to emerge with credit scores of well in excess of 600 post their bankruptcy periods. Once you have your credit score you can charter a path for credit repair after bankruptcy. It may be beneficial to regularly obtain your free credit report on an annual or semi-annual basis to track your progress.
2. Make Your Repayments During The Bankruptcy Period: At times certain debts are not discharged with bankruptcy. The court may order you to keep making repayments on certain loans even after filing bankruptcy. These often include debts like federal debt or student loans etc. While in your bankruptcy period it is very important that you keep making these payments and make them on time and if possible make higher contributions.
3. Obtain Secured Credit: You will find that in your life after
   

   Obtaining New Credit Is Important After Bankruptcy

   bankruptcy, it is extremely difficult to obtain credit or credit cards due to a poor credit score after bankruptcy. Even if you do, they will be with very low spending limits and with relatively higher interest rates. The way around this issue is to obtain a secured line of credit loan or a secured credit card. What this means is that you will have to place your own funds as security equal to the line of credit or credit card. If you keep paying off your balance in full each month, at the end of a couple of years you should be able to obtain a regular credit card or line of credit. This is an excellent method to help you out with credit repair after bankruptcy.

4. Prepare A Budget: Once you have come out from your bankruptcy period it is important to learn from your mistakes. Prepare a budget and try to ensure that you are making higher contributions than your minimum loan repayments to help build your credit score after bankruptcy.
5. Obtain Short Small Amounts Of Credit: In your life after bankruptcy, it is important that you obtain small amounts of credit and pay them of as soon as possible. While living without debt is advisable, you cannot live completely on cash as that will not improve your credit score after bankruptcy. Obtaining small amounts of credit and paying them off will help with credit repair after bankruptcy.

It is important to remember that while bankruptcy is very serious and affects your credit score in the worst possible way, it is not the end of the road and there is life after bankruptcy. With corrective steps and by following the tips to improve your credit score after bankruptcy you could be on the road to recovery and on to a healthy credit score.

References:

1. Bounce back fast after bankruptcy – MSN Money
2. Credit after bankruptcy – Moran Law
3. Chapter 7 impact on credit – Bankrate

James Marland was having issues with his credit report and decided to seek advice from a credit repair company. However, after weighing the costs and pros and cons of a credit repair service, he decided to help himself instead and fix his own credit report.

James’ story puts into perspective the question “Are credit repair services actually needed?” or is credit restoration possible without help from them?

Credit Repair Services – Why They Are Needed

Credit repair services find their place in today’s complex environment owing to the fact that there is a lot of negotiation involved with third parties in order to repair your credit report.

Credit repair companies are usually adept at this and hence know all the channels. In order to avoid the constant hassling of creditors and finance companies, many people opt for these credit repair services. However, with a little organization, you can do this yourself too.

Expensive Credit Repair Help

A lot of people nowadays are seeking credit repair help from credit repair services, however these companies can be expensive. This is not to say that credit help agencies don’t help. They are useful for those who can’t find the time in the day or could do without the hassle. However, you can undertake your own credit restoration too, provided you are willing to invest the time and energy in to it. However, if you would still like a credit repair company to handle it for you; be prepared for the bill.

Credit Restoration – You Can Do It Without A Credit Repair Service

With the easy availability of information and other useful resources available these days, there is no reason why an individual can’t repair their own credit report. Moreover it is also your right under the Fair Credit Reporting Act (FCRA). Repairing your credit report would include getting rid of:

• Overdue Accounts
• Defaults
• Judgments
• Clearouts
• Crossed/linked files etc.

Benefits Of Improving Your Poor Credit Rating

By improving your poor credit rating, you can enjoy benefits such as:

• It removes any negative listings that may have appeared on your credit report
• An improved credit report leads to lower interest rates
• It reduces upfront payments
• Owing to lower interest rates it also reduces your repayments and saves you thousands in higher repayments

Do It Yourself Credit Repair Help

If you are willing to make a bit of an effort to improve your poor credit rating, your credit restoration process does not require you to employ a credit repair company.

1. Obtain a copy of your credit report.
2. If you do notice any errors in your credit report, report them to the proper agencies or bureaus and obtain a copy of written communication.
3. Seek credit advice from your finance providers in case you feel that you might be struggling.
4. If you have fallen behind on payments, make a budget of your expenses and income to figure out how much extra you can contribute towards those repayments in order to catch up.
5. Try and make your payments on time and stay on top of them.

However, at the end of day if you are still struggling, you can always use credit repair services for assistance. Just be careful and avoid the scams promising credit restoration but not really providing any credit repair help.

Alison had a credit card with a credit institution. Although Alison had been very regular with her payments, owing to a system error, her payments were not recorded and were being credited to another account. Her account showed defaults for over two and half months. Alison was completely unaware of this, till she applied for a mortgage. Her application was rejected owing to her repayment history.

She eventually took this up with her credit card company and had the issue resolved, but was unaware that the credit card company had not informed the credit bureau and these listings stay on your report for a five year period.

Credit Report Error Examples

Alison’s credit report error story is not an isolated one. Some common examples of credit errors are:

• Payments not credited to your accounts.
• Default interest wrongly charged to your accounts.
• Incorrect account set-ups there by causing payments to come out early and placing your account in arrears.
• You do not have any dealings with the lender listed.
• The listing on your credit report was over 5 years ago.
• The same credit default has been recorded multiple times.
• The debt default listed had nothing to do with you and you have not acquired the debt.

These are just some examples of the kind of credit errors that may creep into your credit report.

Improve Your Score with Correct Information

In addition to the five elements such as payment history, balances owed, new credit applied for, types of credit and length of credit history, your credit report also records the following:

1.       Your name (including previously used names)

2.       Your address (including previous addresses)

3.       Court judgments.

4.       Dishonored cheques.

5.       Bankruptcy orders etc.

To improve your score the first thing you must do is ensure all the information on your credit report is absolutely accurate. Also it is important to know what is included in your score and which companies report to credit bureaus before you wage a battle with creditors and credit bureaus because sometimes what might seem like a credit error to you might actually be a rent default you had forgotten about.

Credit Report Repair – Get Rid of a Credit Error

The next issue is to solve any credit report errors that might have occurred on your score. Follow some of the steps below to improve your score and repair your credit report.

• Obtain a copy of your credit report regularly (as often as six months if need be) to ensure that no unwanted listings and credit errors have occurred.
• In the event that there is a listing that has wrongly appeared on your credit report, get in touch with your credit provider disputing the credit error and question the credit report error immediately.
• In certain cases the credit provider might have an external resolution system and in that case you might to file a credit error complaint with them to improve your score.
• Finally if none of the other avenues work, talk to the appropriate credit bureau and raise the issue with them by lodging a formal complaint about credit report errors and how it is affecting your score.
• The Federal Trade Commission regularly handles complaints about credit errors so you could complain to them to restore your score.
• Be prepared to fight a legal battle if necessary. This is your credit report and you should not take credit errors lying down. If a creditor will not fix a credit report error, inform them you are willing to hand over the matter for your solicitors to manage.
• If you are unable to repair your credit report alone, seek advice from a credit repair company but be careful as there are several scams out there.

What is Your Fico Score Chart Made Up Of?

Primarily your Fico credit score is dependent on the following factors:

• Length of Credit History – This usually contains data like the time since the account has been active and classifies them based on account type (e.g. consumer credit contract, hire purchase, residential mortgage etc). It also contains data regarding the last time there was activity on the account. This usually accounts for about 15% of your personal credit rating.
• Repayments history – This is the most important part of your FICO score chart as this accounts for 35% of a good credit rating. The data contained in this relates to repayment information classed according to account type. It also displays the presence of any adverse public records e.g. bankruptcies, court judgments, writs etc and also amounts due on accounts in arrears and the time since these amounts were due. This section of your FICO credit score also shows delinquent accounts which have been paid as agreed.
• New credit contracts entered into – This accounts for only 10% of your personal credit rating and contains information such as new credit enquiries classed on the basis of type of account. It also shows the time since the last credit enquiry was made and if good credit history has been reestablished since the last time the account encountered problems.
• Balances owed on each credit contract – As it would suggest this part of your fico score chart deals singularly with balances outstanding on credit contracts classed on the basis of account type. This also displays the proportion of balances owed to the total credit limit available with regard to revolving credit contracts (e.g. Lines of Credit). This accounts for about 30% of your score
• Types of credit- This displays the types of credit used by the consumer e.g. retail accounts, mortgages, credit cards etc. This accounts for another 10% of your Fico credit score.

Your FICO score chart takes into consideration all the factors mentioned above and FICO scores consider not only the negative factors but also the positives.  In addition it would help to know that while banks and finance institutions may consider a lot of outside factors while making decisions, your FICO score only considers the information available on your personal credit rating.

How To Improve Credit Ratings?

Good Fico credit scores are important and if you would like to restore your credit score it is important that you know how to improve credit rating.

• Your repayment history is extremely important and it is essential that you ensure that you keep on top of your repayments for a good credit rating. If you have missed any repayments in the recent past catch up with them.
• Remember that accounts which have been in collections, even after being paid still remain on your personal credit rating for a period of 7 years. Hence paying them off will not make them disappear immediately.
• If you feel like you are going to struggle with your finance obligations, then it may be time to see your bank or financial institution. Talk to them and seek independent financial advice about the best way to resolve your financial stress without letting it adversely affect a good credit rating.
• Having a brand new credit card is tempting but do not accept credit unless needed . This not only creates unwanted credit but also hampers your personal credit rating as it causes an additional enquiry and adds to your list of balances owed/ credit limit available.
• If you have not had a credit file for very long, just to show enquiries on your credit report, do not open up a lot of credit enquiries on your account at the same time. This reflects badly on your Fico credit score as this will show too many enquiries in too short a time.
• If you have had a bad personal credit ratings history, to restore credit scores only get the credit that you need and start paying them off in a timely manner. This will improve your FICO personal credit rating in the long run.
• Check your credit report as often you think fit to check whether you have a good credit rating. Ordering your own credit report does not affect your personal credit rating in any way.

Knowing how to improve credit ratings is not hard. By following these simple steps and managing your credit better you can vastly improve your Fico credit score and achieve a good personal credit rating.

Where to Begin

When rebuilding your credit report, the first thing you need to do is take a good look at your current credit score. Request a copy of your credit report from a credit bureau and learn about the various factors that can have an effect on your financial life. If you don’t fully understand your credit report, ask someone who does to help you out. Looking at your credit report will give you an idea of past wrongs and tell you exactly what not to do for a happy financial future.

Credit Report Rebuilding and Wrong Information

Credit reports often have wrong information and taking a look at your credit file will give you a chance to rectify these errors, if any. You must dispute these entries with the credit bureaus because correcting the mistakes will have a positive effect on your credit score. It’s definitely a great way to up the score with not too much hard work!

A Bigger Hurdle Than You Think

Bad credit is really a bigger hurdle than you think it is. Okay, so you might be able to live without a loan and maybe even the quintessential credit card. But a bad credit score affects other aspects of your life too. If you want a new phone on a plan, you won’t get it with a bad credit report. If you want to buy that trendy watch and pay for it in installments, your application might get rejected because of a poor credit score. Even worse, if you move to another city and want to rent a new place, you might have some trouble with that credit report.

Simple Tips to Get Started

Fixing your credit score and rebuilding your credit report isn’t impossible and here are a few tips to keep in mind when you’re getting started:

Don’t make any new applications for a credit card or for any sort of credit for that matter. Every time you make a credit application, the organization you apply to will run a credit check. Considering your credit score isn’t that great, you will probably get rejected but the number of enquiries for your account will keep adding up.  Too many credit enquires can be damaging for your credit report.

Repay your debts, slowly but surely. The biggest mistake you could make is to run away from your debts. The more unpaid bills and debts you have, the worse your credit score gets. Instead, take a good hard look at everything you owe and start paying it back. Many companies and organizations will let you pay off pending dues in installments. If you can’t pay off lump sum amounts, sign up for such an payment plan and pay your dues in installments. When you start repaying your debts, your credit score will also gradually start getting better.

Keep a check on the spending. Obviously you can’t afford to keep spending more money while you’re trying to get on top of your financial game. Don’t use those credit cards and definitely do not buy things indiscriminately.

It’s not that hard if you really try. Try hard enough and you will soon have rebuilt your credit report back to perfection.