How to Get a Good FICO Score After Bankruptcy
I’ve recently hit the two-year mark since my Chapter 7 bankruptcy was discharged, so I decided to check my FICO score. I was surprised to see it was 730, which is well into the 'good' range.
Like many other people who go through a bankruptcy, I was worried my credit would be damaged for a long time and believed getting a good interest rate on a loan or being approved for anything would be unlikely.
If you’re going through a bankruptcy or know someone who is, here are the five simple steps I took to bring my FICO score into the good range since my bankruptcy.
1) Two months after my bankruptcy was discharged, I applied for one secured credit card.
I have heard of people being approved for regular unsecured cards right after bankruptcy, but I decided to go with the secured card because I felt my chances of approval were better. Following my bankruptcy, I received numerous credit card solicitations in the mail, all of which had outrageous annual fees, huge security deposits and insane interest rates. I threw those out and went online to do some research to find what the best secured credit cards for people who were rebuilding their credit. The same few names came up again and again, so I applied to the Capital One Secured MasterCard. With a reasonable $29 annual fee and a variable interest rate of about 19%, it seemed like the best choice. To date, the card has trouble-free and has worked very well to help improve my credit score. Each month, I make a few purchases on the card and pay them off in full and on time when the bill comes, so I never pay any interest. The credit card reports to all three credit-reporting bureaus and offers the chance to ‘graduate’ to an unsecured card once your credit improves.
There are several other good secured cards out there to consider such as the Wells Fargo Secured Visa Card, U.S. Bank Secured Visa Card and the DCU Visa Platinum Secured Credit Card.
For more detailed information about Secured Credit Cards, see my Hub: Best Secured Credit Cards After Bankruptcy.
· To increase your chances for approval, don’t apply to a credit card company that was included your bankruptcy.
· If you’re turned down for a credit card, wait a few months before you apply again or try a different card company.
2) I didn’t apply for lots of new credit.
I know it’s not always possible to avoid applying for new credit, but limiting the amount of new credit inquiries on your credit report always works in your favor when it comes to your credit score. This includes applications for loans, mortgages, car loans or credit cards just to name a few. The other reason to avoid applying for too much new credit when you’re recovering from bankruptcy is to keep from becoming overburdened with debt and risk getting back in the same situation that led you to bankruptcy. That said, if you do apply for some new credit (such as a credit card, a car loan or a personal loan) and make every payment on time each month, that can reflect positively on your credit report.
What Makes Up a FICO Score?
- Payment History 35%
- Amounts Owed 30%
- Length of Credit History 15%
- Types of Credit in Use 10%
- New Credit 10%
3) I’ve stayed out of debt.
In addition to avoiding racking up new debt, I’ve found ways to cut costs. If you look closely at everything you spend money on, you can usually find creative ways to reduce the amount of money you spend on everyday things. It helps to record your expenses in a notebook or use one of the many expense-tracking apps available. Even small purchases like coffee or snacks add up, so track your expenses for a while to see where you tend to waste the most money.
Here are some ideas to cut costs:
- Use a pre-paid cell phone to limit your monthly cell phone bill costs.
- Cancel your cable or satellite TV service or change your subscription to their lowest cost plan.
- See movies during matinee hours rather than paying evening prices.
- Rent DVDs and books from the library to save money.
- Shop at discount stores whenever possible.
- If you buy products online, always search for the site that sells the item at the lowest price and use coupon or promo codes from a website like RetailMeNot.com.
- If you travel, sign up for fare watcher e-mail alerts and purchase your plane tickets when prices drop. Airfarewatchdog.com is a good site for this. I got an alert the other day for a $150 RT ticket for a route that’s usually $400.
- Shop at a dollar store for necessities like paper products or cleaning products. The savings add up.
- Use coupons for basic items like toothpaste, deodorant, toilet paper and laundry detergent.
- Limit how much you eat out or buy coffee from the coffee shop.
- Stock up on clothes at great prices in the clearance racks at the end of each season.
For more information on staying out of debt, see my Hub: Tips For Staying Out of Debt.
4) I’ve built an emergency fund.
No matter how hard you try to avoid new debt, if you don’t have a cushion of money set aside for unexpected expenses such as home or car repairs, vet bills or medical expenses, these things will usually end up on your credit card. This is especially important for someone with a low income or who lives paycheck to paycheck. No matter what your income level, make an effort to deposit at least $500 to $1000 in a savings account to be used only for emergency situations. You’ll earn a little interest and if you have to use the funds, build them back up again. I’ve found it gives me peace of mind knowing that if some expense suddenly pops up, I’ll have the funds to pay for it without using my credit card. As you're able to, keep building up this account as much as possible. Capital One 360 (formerly ING Direct) is one bank that offers no-fee savings accounts. Ally Bank is another good option. Credit Unions also usually offer lower cost savings accounts than the average bank.
5) I pay every bill on time every month.
Since payment history accounts for 35% of your FICO score, missing even one payment can have a negative impact on your score, not to mention the annoying late fees most companies charge. To avoid a check payment getting delayed or lost in the mail, most companies offer online bill payment. It’s convenient and saves you postage. If you’re someone who keeps very good track of your checking account, consider signing up for automatic payments with your creditors so you’re never late. Also, don’t forget about smaller bills such as magazine subscriptions, products you ordered by mail or medical/dental bills. Bills like this are sometimes easy to overlook and end up going to collection agencies rather quickly. Most of the time, paying off a collection account won’t remove it from your credit report. It’ll be stuck there for seven years. Avoid this by opening all your mail and paying your bills as they come in.
References & Helpful Links
- myFICO - Free FICO Credit Score + Check Your Credit Report Online
Get the score that lenders use most from the company that invented it.
- Experian - Credit Report and Credit Score with Toll-Free Support
Check your credit report and credit score with toll-free support, business credit reports, identity theft protection, and marketing solutions - Experian Official Site
- Equifax - Credit Reports, Credit Scores, Identity Theft Protection
Get your credit report and credit score from Equifax. Monitor your credit and help protect your identity with identity theft protection from Equifax.
- CreditKarma.com - Free Credit Score & Credit Report Data. No Credit Card Needed
Instantly receive your free credit score and free credit report data online. Free credit tools to track and optimize your credit score. No credit card needed & no hidden fees.
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© 2012 carolynkaye