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13

Jul 2019

Credit scores after bankruptcy are close to national average, in just three years

Posted by / in After Bankruptcy, Blog, Weekly Posts /

I just finished a survey of people who filed bankruptcy with me three years ago. Here’s one big thing I found out: credit scores three years after bankruptcy are almost the national average.  

Right about half of the people who filed bankruptcy with me three years ago have a score above 670. A 670 score is considered “good” by Experian.  That’s a little less than the population as a whole, where 60% of people are above that 670 score. 

Some people will be surprised that credit scores after bankruptcy are that high. 

There’s an urban legend that you have to go for seven years with bad credit after bankruptcy.  People tell me all the time they expect to go seven years with bad credit. Other people wonder if there credit score will drop below 400.  

Have you heard anything like that?  It’s not true. 

Besides this survey of people who filed bankruptcy with me, I can point you to two studies by the Federal Reserve.  The Federal Reserve Bank of New York found that “the individuals who go bankrupt experience a sharp boost in their credit score after bankruptcy.” And, the Philadelphia Federal Reserve found that people with a before bankruptcy 540 can expect an after bankruptcy credit score of around 620.

Debt settlement scammers, nosy family members, and some financial gurus will want you to think filing bankruptcy ruins your credit.  But, none of them will put it in writing, because it’s just not true.

I’m surprised the credit scores after bankruptcy aren’t higher.

I think nearly everybody can get their credit scores above 670 three years after bankruptcy.

credit scores after bankruptcy go up

I think nearly everybody should have a credit score after bankruptcy above 670 in three years.

The answer is in another question from my survey. My survey asked people if they got a new credit card in the first year after the bankruptcy. And 43% said, “No.”  That’s a problem.

People tell me, when we go to the bankruptcy hearing together, “I never want to see another credit card.” But, if you want a good credit score after bankruptcy, you have to.

Bankruptcy freezes your old bad credit, it doesn’t erase it. So you need to build good credit on top of it. 

That means you need to go out and get a credit card.  (You’ll get some offers in the mail, but you can also internet search ‘credit scores for bad credit.’) Charge gasoline every month; pay it in full every month.  In that way, within six months you’ll get several more good offers; use each card once a month and pay them in full.  Each week use a different credit card to charge your gasoline, and pay them all in full.  You want to get credit cards with higher credit limits, but you want to keep your actual balances low.

Summary What Does it All Mean?

If you are considering bankruptcy, don’t believe the urban legends. Three years after bankruptcy, your credit can be almost as good as new.  If you have filed bankruptcy, don’t turn your back on your credit. Carefully build a yourself a good credit score after bankruptcy.

Want to find out more on your after bankruptcy credit score? 

After bankruptcy, check these five websites. 

After bankruptcy, getting your credit report right.  

Mike’s after bankruptcy credit score is 681.

 

 

 

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07

May 2018

After Bankruptcy, get a credit card

Posted by / in After Bankruptcy, Weekly Posts /

After bankruptcy, get a credit card. Get a couple.

Getting back to good credit is one of the five ways bankruptcy gives you a new start. The bankruptcy itself helps quite a bit, because the old debts stop chasing you. But to really improve your credit score you have to get and use two or three after bankruptcy credit cards every month. Using credit responsibly leads to a higher credit score, than just having no debt.

Graph showing after bankruptcy credit cards

Getting an after bankruptcy credit card, using it, and paying in full, is a good way to improve your credit.

I reccomend getting about three after bankruptcy credit cards, using them each month to charge something you need, like gasoline or groceries, and paying them in full.

About the time of your bankruptcy discharge, you will get some after bankruptcy credit card offers in the mail. But you should compare those with offers you might find on the internet. I think bankrate.com is a good place to shop for credit cards for people with bad credit. (Right after bankruptcy you are a person with bad credit; if you follow these steps, you soon won’t be.)

When deciding what card to apply for, keep in mind that you are planning to pay the card in full every month. That means you really do NOT care what the interest rate is. You won’t be paying interest because you’ll be paying it off each month. What you want to low or no application fee; and low or no annual fee.

If you can only get approved for one card as soon as the bankruptcy is discharged, that’s ok. Using that first after bankruptcy credit card for a few months, charging and paying off, charging and paying off, will raise your score. So better offers will come your way.   

Here’s a sample of a credit card offer one of my clients got in the mail, about six weeks after her Chapter 7 bankruptcy was discharged.                             

 

 

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26

Apr 2018

After Bankruptcy, check your credit score

Posted by / in After Bankruptcy, Weekly Posts /

After Bankruptcy, check your credit score

Most people have a credit score of about 620 a couple months after bankruptcy.  That’s from a study by the Philadelphia Federal Reserve Bank, a few years ago. (I saved the complete study here.)  And here’s the full size Chart that shows how scores recover.

Credit score bounces back after filing bankruptcy. From Federal Reserve.

Study shows how credit score bounces back after filing bankruptcy.

 

What’s your after bankruptcy credit score?  One free place to check is Lendingtree. Here.    

Now I can’t guarantee that your score will be 620.  But, if I handled your bankruptcy case and your score is NOT what it should be, follow these instructions and send me your credit report.  We’ll see if there’s something hitting your credit that shouldn’t be there.  

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES