Just finished bankruptcy. How can we rebuild credit?

[iamtobythomas]

My wife and I have just finished our bankruptcy. As of January 1st everything will be done and over with and this nightmare will be gone. To explain we built up alot of debt about 4 years ago when I lost my job and was out of work for almost a year, but I have since been steadly employed by the same company since. Now here is my question. We are going to be making a huge life change near the end of 2011. We are moving from Illinois to Colorado were we would like to spend the rest of our live. We would like a way to rebuild our credit to were possibly at the end of 2011 we could purchase a home if possible. Our credit scores are in the mid 550's and I know you need at least a 620 to get a home loan. My question is what can we do to increase our credit score by 70 points in a year. We are already paying our bills on time and have been doing so for about the last year. We were in the low 500s this time last year. Any advice you guys can give I would greatly appreciate any help you guys.




Thanks,
Toby Thomas

[maat55]

I would be less concerned about building your credit score and develope a good spending and savings plan.

Your score will happen with good financial habits.

[iamtobythomas]

I have one. I am taking 10% of my paychecks every week. Roughly about $130 a week and it goes to a savings account where I have already saved about $5500 for emergency or a down payment on a home. So i have that all figured out.

[Seeker]

My wife and I have just finished our bankruptcy. As of January 1st everything will be done and over with and this nightmare will be gone. To explain we built up alot of debt about 4 years ago when I lost my job and was out of work for almost a year, but I have since been steadly employed by the same company since. Now here is my question. We are going to be making a huge life change near the end of 2011. We are moving from Illinois to Colorado were we would like to spend the rest of our live. We would like a way to rebuild our credit to were possibly at the end of 2011 we could purchase a home if possible. Our credit scores are in the mid 550's and I know you need at least a 620 to get a home loan. My question is what can we do to increase our credit score by 70 points in a year. We are already paying our bills on time and have been doing so for about the last year. We were in the low 500s this time last year. Any advice you guys can give I would greatly appreciate any help you guys.

Thanks,
Toby Thomas

I guess I'm confused.

You lost your job 4 years ago and about 1 year after that you got a job and have been working at that job for the last 3 years. So, 1 year you incurred debt, and the last 3 you have been working, but could not negate your past due debts enough with income and so you filed for BK?

Now you have your "new start" but it's too new (for your comfort) and you are trying to plan for increasing your credit score sufficiently enough to "qualify" for a purchase of a home.

You are intending to move to Colorado.... is there work there for you? Is that guaranteed work? Is this as a part of your current job?

What are your monthly expenses? Do you have enough money set aside for emergencies (ie NOT money saved for a down payment on a house -- that's not an "emergency" fund). It's not $5500 to be used for one thing OR another.... you will likely need a bigger emergency fund after purchasing a home ; ie. you should not wipe out your savings for "purchasing" a house.

It's find to plan for purchase, if you can afford it.

So far, there's nothing really here for any of us to make any kind of advice to you.

Do you have a budget? Income minus debts? Will that continue in Colorado? Is the cost of living similar to what you are used to? Does the wife work? Will she? Are there children involved?

One step at a time.

[jpg7n16]

My wife and I have just finished our bankruptcy.

My question is what can we do to increase our credit score by 70 points in a year.

This is probably just not gonna happen.

Even if they see a 620 credit score (which I doubt is even possible for you), they'll see a bankruptcy in the past 2 years. If I were the bank, I wouldn't lend to you - no matter what credit score you showed me. You cannot change your credit history enough to be creditworthy for a major home loan that soon IMO.


You should focus on the basics as advised above. That's where you've got to work, because this is what you can control. Save up cash. Be in the best financial position you can be. Avoid debt.

If you must move to Colorado, you'll likely have to rent a few years before you'd be in a position to buy a home. Though I agree with Seeker, I don't know why you're looking to leave your present employment. Even finding a new job will be much harder with the bankruptcy on file.

[disneysteve]

I agree with the others. Regardless of your credit score, you are going to need to wait at least 2 years after bankruptcy before you will likely qualify for a mortgage.

I also wonder how someone who is bankrupt on January 1 could get their finances in such great shape that they'd even be ready to buy a house later the same year. Will you have at least a 6-month emergency fund AND a 20% down payment AND money to cover closing costs and moving costs? It seems to me that if you are truly able to sock away that kind of cash so quickly, I'd have to wonder why you were forced into bankruptcy.

You say you are saving 10% of your income. Is that all you are saving? If so, I'd recommend you adjust your budget so that you are saving 20% of income. Use the formula 50/30/20 where 50% of income goes to needs, 30% goes to wants and 20% goes to savings. In fact, coming off a bankruptcy, I'd suggest trimming down the 30% to wants and pumping up the 20% to savings. If you can do that for the next 2 years while renting the cheapest place you can find, then you might be ready to start thinking about buying an inexpensive home.

[bjl584]

I agree with the others as well. Focus on your buget. Save up an EF and a 20% down payment, then start looking at buying a home. Your credit score will improve itself.

[minnie1928]

The 10% that you are currently saving, does that include saving for retirement or is that above and beyond the 10%?

I agree with the others, I don't think you'll be in a strong position to buy a house in a year. Take your time, if you are moving to Colorado rent a place for a year or two to get a strong feeling for where you want to live. During that time save every extra cent towards your down payment. A larger down payment will help a bank feel more comfortable lending to you with a lower credit score.

[jIM_Ohio]

Try saving 20% or 30% of gross... when you develop good financial habits, the credit score will take care of itself.

Saving 10% is a start, but that is not enough to save for financial independance, retirement, and home ownership.

I would expect credit score to recover in 7 years, it may improve between year 1 and year 7, but thinking you can own a home in less than 1 year is unrealistic unless you pay a high interest rate (and that would not be a good decision- see the first point- you need to make good financial decisions).

[JoshuaHeckathorn]

The BK may remain on your credit reports for up to 10 years, but you could be qualifying for loans with good rates and terms in about 4 years. 1 year is unrealistic.

I don't think there's anything wrong with trying to keep your credit score in mind as you go about getting your budget on track, rebuilding your finances, building an EF, and saving for a future down payment. There are plenty of things you can do along the way. Here are a few to keep in mind:

1.) Pull your credit reports often and make sure all your accounts included in the BK are reported correctly asap. Often they aren't updated correctly. They should all be reporting that they were included in the BK with a 0 balance.

2.) You have to use credit to rebuild your scores. You can't just use cash and expect things to magically improve. Get a secured credit card if you can't qualify for an unsecured card and use it wisely. That means only using 30% or less of your available credit and always paying on time and in full to rebuild positive payment history.

3.) Do you have a close relative or friend who would be willing to add you as an AU to one of their oldest credit cards in good standing? This will help give your scores a boost as well, and yes- it does still work. Parents have been doing this for years to help their children build credit while they're young, and although it's been controversial recently because of businesses that sell tradelines to complete strangers, legitimate AUs should still show up on your credit reports and help your scores.

[savelikedave]

Pay cash for any car purchases. Cut back to 1 credit card. Keep the balance at 30% OF the balance. Pay all your bills on time. The bankruptcy will stay on your credit report for at least 7 years. If you are planning to buy a house in the future, you may want to wait a few years. You will also probably have to pay a large down payment. Getting on a good budget and living on mainly cash will be a way to strengthen your financial future.

[packerfan]

Focus on budget and savings. Rebuilding your credit shouldn't matter if you don't plan on going back into debt. I know people have different thoughts on this, but I'm a big believer in not going back into debt.

[JoshuaHeckathorn]

Rebuilding your credit shouldn't matter if you don't plan on going back into debt. I know people have different thoughts on this, but I'm a big believer in not going back into debt.

There are a lot of reasons to rebuild credit that having nothing to do with getting back into debt. What about better insurance rates, getting approved for an apartment/home rental, landing a better job, or fulfilling a dream to start your own business? It never makes sense to just ignore your credit and expect it to get better when all it takes is a little effort to watch over it and make sure it's moving in the right direction.

[disneysteve]

There are a lot of reasons to rebuild credit that having nothing to do with getting back into debt. What about better insurance rates, getting approved for an apartment/home rental, landing a better job, or fulfilling a dream to start your own business?

I agree with all you said except what I bolded. Why does your credit score matter to start your own business? Unless you are planning on going into debt to start the business, it shouldn't be an issue.

[JoshuaHeckathorn]

I agree with all you said except what I bolded. Why does your credit score matter to start your own business? Unless you are planning on going into debt to start the business, it shouldn't be an issue.

I had to rely on my personal credit quite a bit when I left the corporate world and started my own business a few years ago. Credit cards are often the best option to manage cash flow for startups in the early stages of growth, and no one is going to approve you for a business credit card if your personal credit stinks.