Once upon a time, a bankruptcy or foreclosure carried a huge negative stigma that attached to your credit history for between seven and 10 years. Since the mid-1990s, that stigma has lessened, aided by the difficulties in the national economy and housing market during the late 2000s. Bankruptcy and foreclosure have become unregrettable ways to gain a financial fresh start. When used for that purpose, a home buyer can qualify for a competitive mortgage in as little as two years after a bankruptcy, and three years after a foreclosure.
1)Check your credit report after bankruptcy discharge to make sure it is accurate and that all debts have been closed and discharged. Some creditors may continue to report collections and open accounts in default, which will continue to erode your score.
2) Make sure that official records, such as property deeds, court foreclosure actions, property tax records and your credit report, accurately record your foreclosure date. Lenders will count three years to the date before approving your next mortgage.
3) Keep any installment loans that survive bankruptcy open, such as student loans, and pay them on time.
4) Apply for a secured credit card as soon as possible–one that reports to one of the major credit reporting bureaus. These cards require you to hold an amount in an account and lend you up to a matching amount as a credit limit. Make small purchases regularly and pay them in full when the bill comes due.
5) Try for a high-interest rate unsecured credit card; a store credit card may be the easiest one to get. Negate the high interest rate by paying purchases off in full during the grace period. Never carry a balance of over 30 percent of your credit limit.
6) Take out a loan on your next large purchase, such as a car, even if it is at a very high interest rate. Scale down the amount of your purchase to ensure that you can easily afford the payment. Making timely payments, and paying the loan down faster than agreed through larger payments, will show that you have learned your lesson and can handle debt more responsibly now.
7) Check your credit report periodically for errors and the reappearance of past â€œzombie debtâ€–old debts purchased by collection agencies and reopened. If the debt is less than seven years old, make reasonable repayment arrangements whenever possible to stop the negative reporting and further damage to your credit. Consult a reputable credit counseling agency on how to deal with a debt that is more than seven years old.
8) Apply for an FHA or VA mortgage after the proper waiting period is over and you have reestablished a clean credit history. Be prepared to explain why your financial difficulties occurred, as well as what you have done and plan to do to avoid it happening again.