Just finished bankruptcy. How can we rebuild credit?

[disneysteve]

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.

Not that I totally agree with all he teaches but Dave Ramsey would take issue with that. He would say that if you can't afford to run your business without debt, you can't afford to run your business.

[JoshuaHeckathorn]

Not that I totally agree with all he teaches but Dave Ramsey would take issue with that. He would say that if you can't afford to run your business without debt, you can't afford to run your business.

I didn't say anything about running a business in debt, although I would argue that debt can often be a highly useful tool for businesses seeking to grow faster than competitors.

Anyway, my point was most small businesses need to manage when they are paid for services/products with monthly expenses, especially in the early stages. You may have $50K in sales that won't hit the business bank account until the end of the month, but there will certainly be other bills to pay throughout the month. Credit cards serve as a useful tool to charge expenses, benefit from the float, and pay balances in full. Many service providers won't even accept payment via check these days, so it makes doing business quite difficult if you can't get approved for a business credit card.

[disneysteve]

Many service providers won't even accept payment via check these days, so it makes doing business quite difficult if you can't get approved for a business credit card.

What about using a debit card? I'm curious because I know Dave Ramsey is 100% opposed to credit cards at all times for all reasons (again, I don't agree with this but it is what he teaches and what he personally practices). So his company doesn't use credit cards to pay their providers. His website doesn't accept credit cards for buying his books and programs. And any Dave Ramsey followers who have businesses would also not use credit cards. So there must be some easy way to do business without a credit card. I'm guessing that would be a debit card.

[JoshuaHeckathorn]

What about using a debit card? I'm curious because I know Dave Ramsey is 100% opposed to credit cards at all times for all reasons (again, I don't agree with this but it is what he teaches and what he personally practices). So his company doesn't use credit cards to pay their providers. His website doesn't accept credit cards for buying his books and programs. And any Dave Ramsey followers who have businesses would also not use credit cards. So there must be some easy way to do business without a credit card. I'm guessing that would be a debit card.

Debit cards are always an option, but they won't help manage cashflow if you have $50K in sales that won't hit the bank account until the 30th and you need to pay other big bills throughout the month while still covering payroll. Of course, more established businesses with sizable cash reserves don't have this problem, but it's often a problem for startups in the early months. And it's hardly a problem that warrants shutting down your business because you need to manage A/R for awhile.

We could always argue the benefits of using credit cards over debit cards too, but I think we've already done that in more than enough detail on other threads.

[snafu]

There are serious repercussions resulting from bankruptcy which stay on your credit record for 10 years. How Long will a Bankruptcy Stay on my Credit Report?

[ThePennyHoarder]

You should try a secured credit card. They are a bit pricey, but a big help to your score.

[cjscully]

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

Unless underwriting standards relax to what they were pre-crash, you will not be able to qualify for a home loan for two years after your bankruptcy is discharged. There isn't a legitimate lender in the country who will touch it.

It is possible to get a 70 point increase in your score in a year's time but that won't make any difference due to the above issue with the bankruptcy.

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.

While this is partially true it is not entirely true. If you have a bankruptcy on your credit report it stays there for 10 years. You have to take specific actions directed at raising the credit score if you want to do it in less than 10 years. Good financial habits alone, even if continued for five years will not be sufficient to rehabilitate a credit score damaged by bankruptcy.

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.

Hate to say this, but this is a little too superficial. Do you have a budget? Do you stick to it? These are the first two steps. Before you try to improve your credit score you need to have a rock solid financial base to operate from. This is where Maat55 is completely correct. The first question you have to be able to honestly answer for yourself is am I able to properly manage new lines of credit if I obtain them? If not, then you need to educate yourself a bit more and start practicing good financial habits. Once you've got that down, then you can rebuild your credit.

You should try a secured credit card. They are a bit pricey, but a big help to your score.

Yes, and no. For someone fresh out of bankruptcy, credit card companies will start offering credit cards fairly quickly. This is because you won't be able to do a new bankruptcy for six years. In this particular case a secured card may not be necessary. He might be able to obtain new unsecured credit fairly soon. If not, then the secured card is the starting point for rebuilding credit.

@iamtobythomas:
Taking all of the above into account here is a general plan for rehabilitating your credit score.
1. Make sure you're on firm financial footing with a workable budget that you actually follow.
2. Open a single Visa or MasterCard account either secured or unsecured.
3. Set up an automatic payment of something like your cell phone or cable bill on the credit card. Don't use the card for anything else at this point.
4. Pay the credit card in full every month. The net effect here is that (a) you have credit card activity, (b) you stay within your budget as the only difference in your payments is who the check is written to and (c) you're not carrying a balance so you're on incurring interest on the use of the card.
5. After three months open another Visa or MasterCard Account repeating the above steps.
6. Wait another three months and repeat steps 2-4.

At this point you will have three credit cards set up making automatic payments of three separate bills that you were previously paying out of your checking account directly and you will be paying off the card balances every month.

IF you choose to use your credit cards for anything else at this point you can but keep in mind the following:
A - Never charge more on any credit card than you can pay in full when the bill comes. Don't carry balances on the cards.
B - Never charge more than 50% of the credit limit on any credit card in any single month even if you can afford to pay it in full at the end of the month. When the banks report to the credit bureaus they report the balance on the card as of the last statement. If that amount is greater than 50% of the credit line it will hurt your score. Even better is to never go above 30% of the credit line while you're trying to rebuild your credit.

[cschin4]

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.

Well said. Too many people with bad credit focus on credit scores. I couldn't care less what my score is because I am not going to take a loan out beyond my means. And, at this point, buying a house should be the furthest thing from your mind.

[cschin4]

So i have that all figured out.

Um...no you don't. There is a lot to learn about good financial management.

[cschin4]

were we would like to spend the rest of our live

Another red flag. You don't know where you will spend the rest of your lives. Nobody does. Planning is fine. But, how do you know when you haven't even live there yet? And, what about the job market? Other life changes happen as well. You are trying to run full steam ahead.