Raising Your Credit Score and Obtaining a New Loan After Bankruptcy

If you have declared bankruptcy, you may assume that it will be years before you can obtain a new loan. While it is true that a bankruptcy filing is documented on your credit report for up to 10 years, you could apply for a home loan one year after the process.

After Chapter 7 bankruptcy, which discharges all debt, you could be eligible for a Federal Housing Administration or Veterans Administration loan in as little as two years. Furthermore, you could apply for a conventional loan in just four years.

If you filed for Chapter 13 bankruptcy, you could potentially obtain an FHA or VA loan in one year and a conventional mortgage in two.

Additionally, some lenders will approve loans earlier if the bankruptcy was a result of extenuating circumstances. For example, if you encountered sudden unemployment or an unexpected illness that dramatically affected your finances, the lender could give you a break. Even so, all lenders will evaluate your current credit report to ensure that you are keeping up with your financial responsibilities. Therefore, it is important to make solid efforts toward reestablishing your credit.

Building credit after bankruptcy

While bankruptcy will initially lower your credit, borrowers of FHA and VA loans can be approved with credit scores as low as 620 or 640. Furthermore, borrowers with a score of 740 or higher will generally qualify for the lowest conventional mortgage rates.

To help expedite your journey to a new loan, you may want to get a credit card. This will help improve your score if you use it efficiently. Specifically, opening up a credit card, using it and immediately paying off the balance can heighten your score.

It also helps to save. Save at least 10 percent of your earnings from each paycheck. Cash is required for a down payment, and lenders like to see that you are making efforts to conserve your money.

Next, you should open a checking and savings account. Conventional lenders view statements from these accounts when you apply for a mortgage. To make your account picture better, avoid overdraft charges, which suggest financial carelessness.

Finally, you should remember to pay your rent and utility bills on time. If you pay your bills for 12 consecutive months, this will strengthen your financial image in the eyes of some lenders.

You should always keep documentation of all payments and have information ready when you are ready to pursue a loan.

It takes time to rebuild your credit after bankruptcy, but with persistence, you can strengthen your score. In doing so, you will be one step closer to the loan that you desire. If you are interested in additional tips and information on obtaining a loan after bankruptcy, you should contact an experienced local bankruptcy attorney.

Article provided by Derren S. Johnson & Associates
Visit us at www.derrensjohnson.com


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