Post-Bankruptcy Credit Report Errors
Published Thursday, July 9, 2009 @ 2:48 pm
Coming out of bankruptcy is a great milestone. It renews confidence, offers comfort and provides you with a sense of accomplishment from meeting a tough challenge head on and surmounting it.
Like most people who have experienced these emotions, you have comprehensive understanding of how to better control your spending and look out for your financial well-being. One component of that is learning to identify common credit report problems that arise after bankruptcy.
Look for a record of credit agency activity that is listed separately from the debt they tried to collect. This makes it appear as if you had two outstanding debts. The original debt should have been discharged as a result of your bankruptcy and thus, the agency should not appear on the report. This is a very frustrating component of a post-bankruptcy credit report because a bankruptcy eliminates debts with organizations to which you owe money but does not eradicate the record of the debts. In other words, it’s a two-step process: removing the debts and reporting that they were removed. Parts of the second step often fall through the cracks.
Another common reporting error involves accounts that were reported closed by the creditor instead of it being closed by you. This would indicate that a creditor shut down the account instead of it being done as a result of a bankruptcy, intimating that it was done outside of your control because of your inability to pay. If a closed account appears open and the payment history demonstrates a clean record, leave that one alone because it will help.
We’ve said on the blog many times but it bears repeating: make sure your credit report looks good at all reporting agencies. It’s very possible that one bureau reports a solid history and the other still shows bad debts. It is also crucial to ensure any existing debt is correctly reported by all agencies.
One technique for proving credit report accuracy after a bankruptcy is to compare your report with your bankruptcy paperwork. Look at discharged debts and then what is listed on your credit report. This is bare-bones way to rest comfortably that your information is being handled the right way and won’t derail any future loan plans, such as a mortgage or student loan.
One last bit of advice: Do not turn to a credit repair business to repair mistakes in your credit report. These are businesses that charge a hefty up front fee, promising to improve your credit score quickly. As someone who took the initiative to contact an attorney, gather your wits and decide that bankruptcy was the best option, you can repair your credit on your own. With some time and a little bit of effort, you can rebuild your credit.
From: The Law Offices of John T. Orcutt. Helping thousands of families with the power of bankruptcy. Call 1-800-899-1414 to set up a free initial debt consultation.
Understanding your FICO score
Published Monday, May 4, 2009 @ 12:44 pm
The automated credit score was created in 1959 by the Fair Isaac Corporation. While “Fair Isaac” may not seem so aptly named for those who are struggling with low credit scores, the FICO system is the most commonly used numeric benchmark by which our lending and credit system measures financial wherewithal.
Unfortunately, so few of us really understand how that number is determined. In fact, if the credit rating system took a more open approach to communicating its processes, especially given the impact they can have on our livelihood, perhaps not as many people would be facing economic trouble. It is certainly worthwhile for anyone facing credit issues to understand as much as possible about how that three-digit number comes to pass.
Your FICO score is a comparative number, meant to contrast your ability to pay a lender back as agreed against another borrower’s ability to pay back that lender. So, the FICO score ranks you according to others using “real-time” information from your credit report. Basically, it uses a scale of 350 to 850 to determine how much of a risk you pose to a potential creditor.
There are three different credit reporting agencies that may report a different number to a potential lender. Although, 90% of the largest banks in the United States use the FICO score, so the odds are very good that a lender will use that number.
Fair Isaac uses a number of facets from you financial history to determine your rank, the most important of which is payment history. The list of five factors is broken down accordingly:
- Payment history – 35%
- Amounts owed – 30%
- Length of credit history – 15%
- New credit – 10%
- Types of credit used – 10%
Do you notice a few things missing from the list? How about income? Or savings? It’s important to understand that even though you have a high-paying job, live in a highly-regarded zip code or have a comfortable cushion of cash in a savings account, you can still have a low FICO score. Only the data in your credit report is considered in your FICO score.
You may hear some people recommend that it’s always good to have some credit or to carry a small balance on a credit card to demonstrate you are capable of handling debt. That is not necessarily true. And, you can’t be hurt by not having debt. If you carry a balance, your risk increases. More to the point, your FICO score can take a hit if you carry balances too close to your limit. On everything from gas company cards to retail credit, you will see little benefit from letting a balance carry over each month.
The idea that carrying a balance is a good indicator of financial responsibility probably stemmed from the actual notion that it can benefit you to use credit from time to time. However, you should do so reasonably and when you do, pay the balance in full. A sizeable purchase–that you can pay off–every couple of months will contribute to a high FICO score.
Therefore, the best way to achieve a solid credit score is to be very careful when considering new accounts or loans. Those with the highest credit scores are the same people who are the most conservative when it comes to applying for credit. And your FICO can also be improved by paying your bills on time. Remember the breakdown above? Payment history is the most critical factor. Therefore, paying late is the single most damaging action to your FICO score.
Home ownership after bankruptcy
Published Tuesday, April 21, 2009 @ 7:15 am
Bankruptcy gives you a fresh start; a relief from the stress and uncertainty about your future. Your hope is that things will soon be back to normal. But that hope is often based on the answers to so many questions. For many, one of those questions may be about your ability to buy a home. You may have heard the myth that a bankruptcy is a black mark on your credit, and that you will never be able to buy a home. Don’t believe it for a second! You can buy a home after bankruptcy. With some time and planning, it will be much easier than you think.
First and foremost, you need take what you have learned through the bankruptcy process and apply it to your everyday management of money. Start small with credit cards (secured cards may be your only option at first) or other lines of credit and use them sparingly and pay on time. The point is to establish a healthy payment history, which is the most critical component of your credit score. Remember that when first rebuilding your credit, interest rates will be a bit higher. Nevertheless, it is important to obtain some credit to demonstrate you can maintain your finances and that the risk to grant you credit, like a mortgage or car loan, has diminished.
A mortgage lender is going to want to see at least two years of responsible credit handling as well as a steady job. A reliable source of income will mean a great deal to a bank when deciding whether or not to grant you a mortgage. Be aware that to a bank, sporadic employment, part-time jobs or freelance work will not be an adequate demonstration of steady employment.
Down payments are also important, especially in today’s lending market, but those requirements can vary. You will certainly stand out as a “good” risk if you have cash available as a down payment. Bankers will recognize this as responsible money handling and it will further demonstrate that you have maintained employment. Additionally, a down payment will help keep your monthly mortgage payment at a manageable level. The larger the positive difference between your monthly income and your mortgage, the better chance you have of being qualified.
Today’s volatile financial environment is for many people the most serious recession they’ve experienced. However, in terms of real estate, bad markets often translate into opportunity. Home prices nationwide have fallen substantially and and are unlikely to reach pre-recession levels for quite some time. This means that homes will be more affordable in the next five years. Additionally, the federal government is creating a number of first-time home buyer incentive programs to encourage home ownerhip.
Given the nation’s collective effort to help everyone get back on their feet, a person emerging from bankruptcy will be in a great position to own a home in very little time. With the advice of an experienced bankruptcy attorney and some sound financial planning, you can be rid of your debt and be on the path to owning a home.