Re-Establishing Credit

Re-Establishing Credit

 

When bankruptcy is appropriate, it is usually not a question of maintaining good credit - your credit standing is probably already damaged. Judgments, delinquent payments, and credit counseling services are reported to the credit agencies for long periods of time like bankruptcy.

The Barry Sternberg Law Offices gives each client detailed information on how to improve credit scores after bankruptcy.  The credit reporting bureaus report a bankruptcy filing for a period of seven to ten years, depending on the Chapter filed.  Negative information such as delinquencies and charge-offs are reported for seven years. Judgments and other types of public records can be reported up to ten years.


The Credit Game


If you’re serious about re-establishing your creditworthiness after bankruptcy you must know how the “credit game” is played. The lending industry has changed drastically since the early 1980's.  Prior to then, lenders were strictly regulated in the interest rates they could charge. As a result, people were either approved or denied credit based on very narrow creditworthiness criteria.  If a bankruptcy was part of someone’s credit history – well, that was especially bad! The door to credit markets was shut tight to anyone who had declared bankruptcy. Nowadays, the credit industry is completely different. It has evolved into risk-based markets, meaning that credit is more widely available based on the ability of lenders to charge higher interest rates for higher risk customers. Larger institutional lenders needed to develop policies and methods for quickly evaluating the risk factors for tens of thousands of potential customers seeking credit. Thus, lenders began the wide-spread use of “credit scoring” as a fast, inexpensive way to group their customers into categories based on their relative creditworthiness, and allowing the lender to vary the price of credit (the interest rate) accordingly.  The way lenders view it – lower scores justify higher profits!


Lenders, Insurance Agents and Employers are Starting to Keep Score.  Are You?

The importance of credit scoring in American society today can’t be over-estimated.  Credit scores, in large part, determine not only what interest rate you pay for obtaining credit, but also what you pay for insurance, where you can rent an apartment, and possibly where you can be employed.

There is one important thing to keep in mind – nowadays it’s not your bankruptcy filing that determines how lenders, employers and insurance agents will evaluate you – it’s your credit score!  Bankruptcy is certainly an important factor in your credit score, but the negative effect of a bankruptcy can be overcome in a relatively short period of time if you understand how the credit game is played. Despite the growing importance of credit scores, the majority of Americans have no idea what their credit score is.  In fact, until very recently the credit bureaus prevented lenders from divulging scores to their customers. Now, however, you can obtain your score from the credit bureaus for a small fee.

What many people don’t realize is that those who file bankruptcy will actually see an improvement in their credit score.  On the other hand, after a bankruptcy you need to be vitally aware of your score, and how your credit history is being reported.  There is a greater potential that inaccuracies will appear in the credit reports of those who have filed bankruptcy, which will keep the credit score suppressed unless certain steps are taken to remove the inaccurate information.  This process for correcting these errors has been called “credit re-scoring.”


After Bankruptcy, You Must do Everything Right

After bankruptcy, not only will it be necessary to ensure that your credit report is accurate, you will need to do everything right when it comes to re-building your credit history. Especially important, you must pay your bills on time! The Fair Isaacs Company, the leading developer of credit scoring, states on their website that one delinquent account can lower a credit score by as much as 70 to 120 points. Suffice it to say, anything that can improve your score even a few points after bankruptcy could make a significant difference in how much you pay for credit, or even whether you can obtain credit at all to buy the home or vehicle you always wanted.


Rule number one – if you want to win the credit game, you need to know the score!

There are three main credit bureaus that control and disseminate most of your credit information. You are legally entitled to see your own credit report.  For more information on obtaining your credit report and credit score, you can contact the three major national credit bureaus:


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