How to Build Credit After Bankruptcy
Apply for a new credit card., Get a secured credit card., Ask someone to be a cosigner or guarantor., Secure a bank loan with a CD or savings account., Purchase an item on credit from a local merchant.
Step-by-Step Guide
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Step 1: Apply for a new credit card.
First, figure out if you really need one.
If you already have a credit card, applying for a new one could further damage your score.
New credit inquiries, which account for approximately 10 percent of your FICO credit score, lower your credit score because it make you look like you are desperate for more credit.
Also, 13 to 15 percent of your credit score is based on the length of your credit history.
New credit accounts bring the average length of your credit history down, which has a negative effect on your credit.FICO is a company that develops credit scores based on your payment history and other factors.
Most lenders use the FICO score to evaluate your creditworthiness.If you decide to get a new credit card, it is often easiest to get one from a gas station or department store.Before applying for a new credit card, wait until you are working, have been at your current address for more than a year, and you don’t have a high number of other new credit inquiries on your credit report. -
Step 2: Get a secured credit card.
Many people with a history of bad credit or bankruptcy are denied for regular credit cards.
However, if you are someone who really needs a credit card because, for example, you travel a lot for work, consider getting a secured credit card.
With a secured credit card, you deposit a sum of money with a bank or credit union, and they give you a credit card with a credit limit for a certain percentage of your deposit.
The percentage can range anywhere from 50 to 120 percent of your deposit.The amount you are required to deposit differs from bank to bank.
The deposit could be anywhere from a few hundred to a few thousand dollars.
Many banks charge expensive application and processing fees, and the interest rates on a secured card can be upwards of 20 percent.
Most major banks report secured credit cards to the three credit reporting agencies.
However, smaller banks may not.
Ask if your bank reports to the credit reporting agencies.
If not, having that secured credit card will not improve your credit.
If you use the card responsibly for several months or a year, some banks may allow you to convert the secured card into a regular credit card. , If you are having trouble getting approved for a credit card, ask a trusted friend or family member to cosign your application.
Do keep in mind that personal and family relationships can be ruined by these types of arrangements, since a cosigner or guarantor promises to pay your debt if you default.
Cosigners are typically used for consumer accounts.
Guarantors are used for business credit accounts.
The lender usually reports both your name and your cosigner’s name to the credit reporting agencies., Take some money that you have saved and open a savings account or a certificate of deposit (CD).
Ask your bank or credit union to give you a loan against the money in the account.
The bank will require you to hand over your passbook and ATM card, removing your access to the money in the account.
This way, the bank assumes no risk if you default on the loan.Typically, the bank will lend you up to 85 percent of what is in the account.
Most banks will give you anywhere from one to five years to repay the loan.
In order to establish a pattern of paying your bills, take at least 12 months to repay the loan and make all payments on time.
Ask the bank if they will report the loan to the three credit reporting agencies.
If not, then the loan will not improve your credit. , Local stores may allow you to purchase an item on credit.
Be prepared to make a downpayment of at least 30 percent.
Also, you may have to accept a high interest rate.
The store may need you to get a cosigner on the credit account.
Finally, make sure the merchant reports its accounts to the three credit reporting agencies in order to rebuild your credit.If a store will not issue you credit, try establishing a relationship with the merchant by purchasing items on layaway.
Once the merchant sees that you are capable of making regular payments, they may be willing to let your purchase an item on credit. -
Step 3: Ask someone to be a cosigner or guarantor.
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Step 4: Secure a bank loan with a CD or savings account.
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Step 5: Purchase an item on credit from a local merchant.
Detailed Guide
First, figure out if you really need one.
If you already have a credit card, applying for a new one could further damage your score.
New credit inquiries, which account for approximately 10 percent of your FICO credit score, lower your credit score because it make you look like you are desperate for more credit.
Also, 13 to 15 percent of your credit score is based on the length of your credit history.
New credit accounts bring the average length of your credit history down, which has a negative effect on your credit.FICO is a company that develops credit scores based on your payment history and other factors.
Most lenders use the FICO score to evaluate your creditworthiness.If you decide to get a new credit card, it is often easiest to get one from a gas station or department store.Before applying for a new credit card, wait until you are working, have been at your current address for more than a year, and you don’t have a high number of other new credit inquiries on your credit report.
Many people with a history of bad credit or bankruptcy are denied for regular credit cards.
However, if you are someone who really needs a credit card because, for example, you travel a lot for work, consider getting a secured credit card.
With a secured credit card, you deposit a sum of money with a bank or credit union, and they give you a credit card with a credit limit for a certain percentage of your deposit.
The percentage can range anywhere from 50 to 120 percent of your deposit.The amount you are required to deposit differs from bank to bank.
The deposit could be anywhere from a few hundred to a few thousand dollars.
Many banks charge expensive application and processing fees, and the interest rates on a secured card can be upwards of 20 percent.
Most major banks report secured credit cards to the three credit reporting agencies.
However, smaller banks may not.
Ask if your bank reports to the credit reporting agencies.
If not, having that secured credit card will not improve your credit.
If you use the card responsibly for several months or a year, some banks may allow you to convert the secured card into a regular credit card. , If you are having trouble getting approved for a credit card, ask a trusted friend or family member to cosign your application.
Do keep in mind that personal and family relationships can be ruined by these types of arrangements, since a cosigner or guarantor promises to pay your debt if you default.
Cosigners are typically used for consumer accounts.
Guarantors are used for business credit accounts.
The lender usually reports both your name and your cosigner’s name to the credit reporting agencies., Take some money that you have saved and open a savings account or a certificate of deposit (CD).
Ask your bank or credit union to give you a loan against the money in the account.
The bank will require you to hand over your passbook and ATM card, removing your access to the money in the account.
This way, the bank assumes no risk if you default on the loan.Typically, the bank will lend you up to 85 percent of what is in the account.
Most banks will give you anywhere from one to five years to repay the loan.
In order to establish a pattern of paying your bills, take at least 12 months to repay the loan and make all payments on time.
Ask the bank if they will report the loan to the three credit reporting agencies.
If not, then the loan will not improve your credit. , Local stores may allow you to purchase an item on credit.
Be prepared to make a downpayment of at least 30 percent.
Also, you may have to accept a high interest rate.
The store may need you to get a cosigner on the credit account.
Finally, make sure the merchant reports its accounts to the three credit reporting agencies in order to rebuild your credit.If a store will not issue you credit, try establishing a relationship with the merchant by purchasing items on layaway.
Once the merchant sees that you are capable of making regular payments, they may be willing to let your purchase an item on credit.
About the Author
Scott Chapman
Writer and educator with a focus on practical crafts knowledge.
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