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Fixing Credit Score after Bankruptcy

By Sally Maison
Published: Saturday, September 26th, 2009

It may sound a little ironic, but the only way to fix a credit score after filing for a bankruptcy is by hoarding more debts. The trick is to manage those debts well in order to make a good impression to the credit reporting agencies (CRAs).

Fixing Credit Score after BankruptcyA bankruptcy file flags down a consumer from 7 to 10 years. However, with the high bankruptcy rates, lenders are more willing to forgive. The number of bankrupt Americans back in 2002 reached almost 1.6 million. In 2005, it hit nearly record high with almost 2.1 million. This number went down in 2006 and 2007 with about 600 and 800 thousand respectively. However, the numbers surged again last year with more than 1.1 million Americans who went bankrupt. With the continuing recession, finance experts project higher rates this year.

Each consumer must know that he is not alone in his credit score troubles. A bankruptcy may stay in a credit report for 10 years, but a person can bounce back into better ratings. The first thing that a consumer must do to start over again is to clean up his credit report. He must check his reports for accounts which are either marked open or overdue. Then he should get in touch with the CRAs and inform them that those accounts are included in bankruptcy.

Once the sheets are clean, a consumer can start applying for new credit. Installment and revolving credit can significantly boost a person’s rating. Credit-cards are the most popular form of revolving credit. People who filed bankruptcy recently will find it difficult to apply for secured cards. So they must apply for a secured card which offers a limit that is equivalent to the amount a person deposits to the card issuer. Depositing about $500 and using up less than 30 percent of this available amount will increase one’s credit score significantly. Of course, regular use and prompt payment is a prerequisite.

Getting an installment loan is another good idea, experts say. An auto loan is the most popular choice. There are lenders who specialize in providing finance to bankrupt consumers. Of course, the interest at first will be sky-high (as high as 20 percent), but that could drop to half the original rate within two years of prompt payments.

Transacting with local retailers may not be able to boost scores, but it can build creditworthiness consistently. Getting store cards and paying them promptly, as one should do with major credit-cards, is much appreciated by merchants. They will report a consumer’s efforts to the CRAs so he can eventually bounce back to better scores.

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