I’ve told you about some of the rip-offs and scams that hurt people coming out of bankruptcy, especially in the Los Angeles, California area where we practice. See–New Credit After Bankruptcy–How to Get it and What to Avoid. The search for new credit can be frustrating. So how do you avoid the scams but still build new credit?
Brace yourself for disappointment. Whether you are looking for a new credit card, a car loan or a home loan, the road to new credit will be challenging. There is no sure fire way of getting new credit immediately after bankruptcy. It is possible to acquire new credit over time, but be prepared for a long haul. Let me explain why that is the case; and then I’ll share some important credit tips for folks facing this challenge.
America has been on a massive credit binge for the past 30 years. Total credit card debt (“revolving credit”) for Americans has grown from about $55 billion in 1980 to around $800 billion in 2010. Until the most recent recession, people were issued credit simply because they were breathing, not because they were credit worthy to begin with. Those days are over!
The bottom line is that to establish new credit, you now have to be credit worthy.
For many people, it will not be possible to establish credit unless their circumstances change. For those who are on a fixed, low income, it probably won’t happen. Folks who are unemployed are not likely to establish new credit until they can get back on their feet.
Even if you have a decent job, don’t expect to get new credit without proving that you are really qualified to have it. Banks are scared to lend, and before they do, a bank has to be very confident that you have the ability to repay what they loan you.
… start by thinking small.
To be credit worthy once again, you need to have personal financial stability. That means steady income—over a lengthy period of time. Being “new on the job” won’t cut it. Living on a fixed low income won’t cut it. However, being two years or more with the same employer should give you a realistic chance of establishing new credit.
Get a new car loan. …dealers don’t care if you just had a bankruptcy….
The new credit you want has to correlate with your income (i.e., your ability to repay); and you have to establish that your income is steady and dependable. If you make minimum wage and you want to buy a house, that sort of credit is not going to happen. No matter what your circumstances are, start by thinking small. Applying for something with a small limit has a far better chance for approval. If you get even a small amount of new credit and handle it well, chances are excellent that it will lead to plenty more. But remember, it takes time.
… you can reaffirm that [car loan] debt during your bankruptcy case.
Get a new car loan. Most of my clients tell me they get solicited by literally dozens of car dealers as soon as they receive a bankruptcy discharge. Car dealers want to sell cars. They don’t care if you just had a bankruptcy, and they may be able to pull some strings to get you financed.
… a chain clothing store [for a credit account] is a good option….
If you already have a car loan and you want to keep the car, you can reaffirm that debt during your bankruptcy case. This is probably the easiest thing you can do to reestablish your credit, because you don’t have to reapply or qualify for it, and it will be a strong positive indicator on your future credit score if you have a good payment record and you keep it that way. Having a major account like a car loan with an excellent payment record will probably give you a huge head start on the road to credit recovery. Of course, there are important cautions for debtors that want to reaffirm a car loan in bankruptcy, and we have written about these issues in our Human Guide to Bankruptcy–here.
If you handle a secured card account correctly, most issuers will step you up to a real credit card.
Here are some additional suggestions for getting new credit cards:
- If you have a clean record on your bank or credit union checking account, there is a decent possibility they will give you a credit card, probably with a small limit.
- Applying to a chain clothing store is a good option, because they typically offer a small credit limit and they target customers who are just starting out.
- Secured cards are probably your very best option, but only IF the bank reports the account to a credit bureau. If you handle the account correctly, most issuers will eventually offer to step you up to a real credit card.
Bayer, Wishman & Leotta is a full service bankruptcy firm. We have offices in Downtown Los Angeles, the San Fernando Valley and Long Beach, California. Our attorneys are Certified Specialists in consumer and small business bankruptcy and you may reach us at (800) 477-3111. Check us out on AllExperts.com. Also, for lots of valuable bankruptcy information, look for us at TheBankruptcyGuide.net, a Human Guide to Bankruptcy.