Posted: 4/7/2004 3:38:43 PM EDT
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need some advice for a friend who is in a bit of a bind trying to get their credit back on track. how does one start to get credit after a bankruptcy? does marital status make a difference? home ownership? state where you live? any advice would be greatly appreciated! thanks! dr jess |
| Dave Ramsey at daveramsey.com dispenses sound financial advice. His entire basis is that the borrower is slave to the lender, you don't want to be a borrower. His book, "Total Money Makeover" offers advice on how to climb out of the hole of debt or in this case start over with a better footing. |
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Quoted: i have no idea what discharged means in regards to a bankruptcy...all i know is that it happened in 2001... Is she out of bankruptcy yet? My buddy declared chapter 7 back in 1999. He now has better credit than I do and I've never declared bk. Has she looked at her credit? |
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Surprisingly, it isn't always that hard to get (low-limit) credit cards and such after a bankruptcy, because you aren't able to file bankruptcy again for 7-10 years. You largely have to start small and work up over several years. The single most important part of rebuilding your credit is to [b]pay AT LEAST the minimum payment ON-TIME.[/b] You must also USE your credit, so that you have at least SOME balance to pay on. If need be, most companies offer secured credit cards. You send them $500 or $1000, and they issue a credit card with that credit limit. You still pay (usually high) interest on money you charge on the card, but it gives you a way to prove your responsible credit behavior. After a year, start applying for a conventional credit cards every 3 months until you get one. Then, use it at least once per billing cycle and, either pay off the balance or at least make the minimum payment on-time. Every year after that, apply for a card with a larger credit limit. It will take a few years, but you can get your credit back if you are diligent. -Troy |
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has had trouble even getting a store credit card since the bankruptcy - i figured a store credit card would be a good place to start - maybe a department store credit? explain exactly what happens when you declare bankruptcy...a business went bankrupt, not the individual - has always had a job, pays the car payments, pays the mortgage...whatever bill there is, it gets paid on time. thanks for the help - i really do not know enought about this stuff to help out...just hate to see someone get punished for so long when they work their ass off day after day and still can't seem to get their credit back. |
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They need to start by pulling a copy of their credit report from all three agencies, and making sure there isn't anything on there that shouldn't be there. They should also request, in writing, why they were denied credit. If all else fails, the secured credit card is always an option to get them back on track. -Troy |
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Few things to find out. What type of bankruptcy was filed? Has it been discharged? Meaning the bankruptcy filing is NOT still open. All things were settled and creditors agreed with settlements. Has she pulled credit yet? There may be some things that did not fall off, per se. Typically, the best way to re-establish credit is to purchase something substantial. Such as a house or car. Paying the debt over 1yr period will re-establish CREDIT HISTORY. Which is what is need for the future. On thing to keep in mind that most people do not know about is debt to income ratio. You could have a 700+ credit score, which is pretty darn good. However, most creditors will now look at debt to income ratio. If you are over extended, meaning your monthly income is mainly going towards debt, they would deem you as high risk and may not issue credit. Lots of creditors got burned from folks with out of whack debt to income ratios. They got laid off and it was like a house of cards. Typically banks will go with a maximum of 55% debt to income ratio. I have seen folks making 10K a month with 9K in bills monthly. Since they are paying them on time, they have high credit scores. However, due to the high debt to income, it is difficult for them to get unsecured loans. Paying on time 1X-2X does not make for good CREDIT HISTORY. Specially after a bankruptcy. Over extended and getting a lot of credit after a BK does not make for a good credit pattern as well. CREDIT HISTORY is just that. History of good paying and money management. That is why most employers will now pull credit reports. It will show how responsible the person is. |
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thanks for the advice... i will relay what you told me... not sure about the nature of the bankruptcy, only that a business had to declare it for reasons i do not know all the details of (nothing shady, just a shitty situation with a decent human being caught in the middle) will a bankruptcy show up on a credit report whether or not it has been discharged? |
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Quoted: not sure about the nature of the bankruptcy, only that a business had to declare it for reasons i do not know all the details of (nothing shady, just a shitty situation with a decent human being caught in the middle) The problem with business bankruptcy is that the principal are typically dragged into it. Meaning their credit reports gets dinged by the creditors. What I would suggest is; after a year, dispute the bankruptcy from their own personal report. This may be difficult if the business was not incorporated and was only a DBA. With regards to store credit cards, it could be that this persons debt to income ratio is out of whack. The difference between being discharged and not discharged is this. Not Discharged: Meaning the bankruptcy was filed and being reviewed. The problem in this situation is, since it is not finalized. Any credit you get while this is going on can still be tacked on to the filing. EX: I file for bankruptcy. At the same time I apply for a Discover card and run it up. As long as my BK is still open I can add that Discover card to the original filing. Discharged: Meaning all settlements have been agreed to and finalized. Same scenario as above will not fly. The Discover card debt is yours to keep. So you see the risk the creditor is getting into if the BK has not been discharged. Typically BK will stay in your credit report for 7-10yrs depending on type. Since this was a business, if the biz was a DBA it is the owners debt. If it was a corporation, that could be a bit more complicated. EricTheHun is a bankruptcy lawyer and may be able to shed some light on this. |