Maintaining Responsible Credit Lines

Interviewer: Okay. Is there any sweet spot in terms of the number of credit lines you should have or the amount that you should carry as balances on credit lines?

Andrew Campbell: Well, it gets complicated, but let’s say that you have three credit cards and your maximum balance on all three cards in total is fifty thousand dollars. It’s probably wise to keep the total balance under twenty-five thousand dollars in total.  Don’t go over fifty percent of the amount of credit that you could use. That will impact your score.

Interviewer: That fifty percent level – is that a reasonable level to keep your limits at?

Andrew Campbell: Yeah, it’s best to keep the limit there or below that. You want to keep below that if you can, so if you’ve got ten thousand dollars in credit, try not to use more than five thousand dollars in any one time.

Interviewer: How about number of credit lines? How many should you get and should you get different types?

Andrew Campbell: Yes. There should be a good mix. If you’re coming out of bankruptcy you’re going to want to keep the numbers fairly small because you’re going to want to limit your risk, and most of the people I’m talking about have incomes of anywhere from twenty thousand to a hundred thousand if they’re married. That’s the most common kind of income levels. You have that range. You’re going to want to have one installment loan, so one secured loan like a car is a great way to improve the credit.

Let’s say you own your car outright and you get your discharge. Once you’ve improved your score through use of a secure credit card, once you’ve improved your score by ordering your report and disputing and making sure everything’s accurate in the report, then as long as your income is good enough you can probably go out and still get a car and that will start reporting on your credit. So you do want probably one secured debt or one installment type loan and then you might want to have maybe one credit card debt with a secured credit card to use gradually, because everyone needs to fly and travel or rent cars and you need credit cards to do that.

Interviewer: Right.

Andrew Campbell: You’re going to want to kind of keep the risk limited because you don’t want to get caught in the same trap you were before. Those are other ways as well. If you have a home, there’s another trick that you can use. If you have a debt that’s been discharged, typically the mortgage debt on your home is discharged. You’re not legally obligated to pay it but you want to keep your house, right? So a lot of times you simply keep paying on it and then once you’ve paid it off in full you’ll get the release of the lien.

Many creditors feel they cannot report your house payments because the debt has been discharged. So even though the person is being responsible, that demonstration of responsibility does not show as a tradeline on their report.  One trick around that that can work – it’s not guaranteed but it can work – is to use other laws to your advantage. I’m talking about the Truth in Lending Act. Under the Truth in Lending Act, you can get your mortgage company to send you your payment history. About six months after discharge of your bankruptcy, I encourage clients who have a mortgage to ask their mortgage company for a copy of the payment history for the last year.

Interviewer: Okay.

Andrew Campbell: Then take that payment history, write a letter to the credit reporting agencies, and say, “XYZ mortgage company is not reporting a debt onto my credit, but I have been paying on this debt. Here’s a list of my payments, which have been provided to me from the mortgage company. Please make sure that these payments are accurately noted and reported onto my credit so that everything is accurate.”

That can sometimes work.  There still might be some problems because technically the debt is discharged but it has worked for some.