Making the decision to file for bankruptcy is not the easiest decision to make, yet it provides a way to eliminate debts so you can start over. If you are preparing to file, you might have questions about the effects it will have on your credit.
Bankruptcy does affect credit; however, it may not affect your credit for as long as you might think. In fact, if you handle it properly, you might be able to qualify for credit lines and loans within a few years of filing.
One type of credit you can apply for after bankruptcy is a credit card. In fact, you will probably receive a lot of credit card offers shortly after you file. This is normal, but you should not take advantage of most of these offers. Instead, you will need to handle credit lines wisely.
A good first step to take after bankruptcy is applying for a secured credit card, which is a card backed by money you put down as a deposit. For example, you might qualify for a $500 credit card line through a credit card company if you deposit $500 into the bank that offers the card.
Getting a secured card may help you improve your credit score. Each time you use the card and pay off the balance, it will post as a positive payment history to your name and account.
You should know that this only helps your credit if the lender of the card posts to the credit bureaus. If the lender doesn't, getting a secured card will not increase your credit score. You can apply for a secured card within a few weeks or months after the court discharges your bankruptcy case, but you should wait to apply for a regular credit card for at least one year after the discharge.
If you live in the United States, you probably need a car. However, if you don’t have the ability to pay for a car, you may wonder how long you should wait to apply for a car loan after bankruptcy. Many people think they must wait for 10 years, as this is the amount of time the bankruptcy stays on a person's credit, but this is not true. After just a few months you can apply for a car loan but the interest rate will be very high.
Lenders base interest rates on credit scores, which indicate a person's ability to pay back the loan. If you wait for several years after filing, your credit score will most likely be higher, which will result in a lower interest rate on your loan.
If you do not care about the interest rate, you probably won’t have a problem qualifying for a car loan within six to twelve months after the discharge of your bankruptcy.
The hardest type of loan to qualify for is a mortgage loan. However, some people qualify after waiting a few years after filing. One of the key goals you should have after filing for bankruptcy is improving your credit score. If you take the right steps right after you file, you could improve your score enough in just two years to qualify for a house loan.
The trouble with house loans is that different loan types have different requirements. For example, if you’re a veteran you might have to wait only two years to qualify for a VA loan, while others might have to wait four to seven years to qualify for a conventional mortgage loan.
Filing bankruptcy is an option if you are struggling with heaps of debt. If you want to find out how this could help you and the effects it would have on your credit, schedule a consultation appointment with Terry E. Hurst, Attorney at Law.