Interviewer: Okay, what else have you seen people do, successful people do to build up their credit after having filed bankruptcy?
Are there any case studies of anyone that’s filed bankruptcy – what was their score when they filed and have they built it up and what they were able to do?
Andrew Campbell: Unfortunately, my clients rarely inform me of their progress after having filed. Life tends to get in the way.
I didn’t get a lot of people really valuing it but I used to guarantee a six hundred score within six months of discharge as part of my bankruptcy services.
No one ever seemed to complain.
Whether that was for a lack of interest, they got distracted or they were not interested in building their score I am not sure.
But I can guarantee anyone that if they employ these strategies properly and they pay their debts on time after discharge that they could easily improve their score within a short period of time.
Whenever possible they have to make sure that whoever they’re paying reports their payments to the credit reporting agencies. So for example, if they have a landlord they should try to get the landlord to report to the credit bureaus if they can.
Not every landlord will or does.
Using a secured credit card can also be a safe way for clients to rebuild their credit after having filed.
Interviewer: How long does it take to raise someone’s score and what’s the average raise you’ve seen?
Andrew Campbell: This does depend upon several things.
First, ideally, you will want to be financing a vehicle after your bankruptcy.
That is because that is a fairly large payment being made every month which will allow a person to show responsibility.
Typically you’re going to be able to get your score over six hundred within six months of your discharge.
When you file there’s a four-month delay until you get your discharge.
So it takes about ten months after you file if you follow these strategies properly.
Interviewer: Have you seen any real surprises where someone’s done phenomenally well?
Andrew Campbell: No, because most people don’t want a lot of new credit after bankruptcy.
So most steadily increase their score because they pay their utilities and smaller bills on-time and don’t overextend themselves.
What client’s should not do is to completely cut-off any type of credit. It sounds like a good idea but it’s not.
Credit scores increase as you pay down debt, pay debts on time, and keep your credit card balances small in terms of available credit.
Be careful to not allow a large number of inquiries to be made all at one point in time.
Eighty percent of the population has a score of six fifty or higher. This can be obtained but you must have enough income to be able to justify any credit.
Obviously, you have to take certain steps, have enough income to be able to pay y our bills and you cannot be late on any payments.
Also, the mix of credit is very important. Paying on a car loan that 1) you can afford and 2) is a good value to you is very important.
Many of my clients in Chapter 7 keep car debt or reaffirm that debt when it is in their best interest.
Interviewer: Okay. What have you seen that people can do once their score gets to like six hundred or six fifty?
What doors does it open for them?
Andrew Campbell: First of all, a bankruptcy will generally reduce interest rates. That’s because it’s reducing risk to the client’s creditors.
There are literally thousands of credit scoring systems. So to state the exact factors are impossible. What we do know is that roughly 35% of your credit score is related to your debt to income ratio.
So when you file for bankruptcy your income isn’t changing but your expenses are changing.
When you get a discharge unsecured debt is released. This changes the debt to income ratio.
After discharge, a client should carefully check their credit scores by using
to get all three credit reports on an annual basis and taking a few minutes to make sure things are reporting properly.
One point I want to clarify: if you’re going to go out and get a vehicle within a few months after discharge it’s not that hard to do.
You must be very careful when purchasing cars after bankruptcy. The biggest mistake people make is to gamble with their future by not being very picky about who you buy a vehicle from.
You want to buy from a reputable dealer. You want to do a free vehicle history check before you buy. You want to pay a licensed mechanic to come out and take a look at the vehicle.
Let them take a test drive, inspect the vehicle and ask questions to the dealer.
A $150.00 investment can save you from having to file bankruptcy again.
Be very careful when purchasing cars six model years old because dealers can sell you a previously disclosed salvage vehicle without disclosing that fact.
The only exception to that rule is if the car was required to have been salvage, flood damage, stolen in another state. In that case, that title must be forwarded in that form no matter the vehicle’s age.
Remember if you buy a warranty or service contract it will not cover anything within the first 90-days of service.
Make sure you read the warranty. Make sure the dealer gives you the warranty before agreeing to pay for it. Don’t tolerate any excuses, you want to review the terms of the warranty no matter how boring that might be. Take fifteen minutes and figure out what you are buying.
It’s super important that you’re careful about the type of company you are dealing with.
Don’t go to a buy-here-pay-here dealer. They mainly get their vehicles from the auction. Vehicles from auctions are often former rental cars.
They are cars from other states which can be suspicious on its own. Many states have much tighter rules and vehicles from those states should be carefully examined prior to purchase.
Most of the time any service contract with a buy-here-pay-here dealer is not going to do a good job with service. There are always exceptions of course.
No matter what, if you go to a subprime dealer. You’re going to be overpaying and it is likely that you are going to buy a risky car.
You want to get a very good deal because the payment for a vehicle is huge as far as improving your score
I see far too many that are back experiencing horrible problems again within just a year of having filed for bankruptcy because of subprime dealers and lenders.
Interviewer: What kind of problems?
Andrew Campbell: You buy from a sub-prime dealer, you buy a car with no warranty on it then thirty days later it breaks down.
Then they can’t drive it because they cannot afford the repairs. So they stop paying it gets repossessed and then six months to four years later you are going to be sued.
Now you are back in the same position but with at least another four years before you can file Chapter 7 again.
If you can do it, see if you can get a loan from a credit union and buy from an individual.
Try and buy from someone that bought the vehicle brand new and did not have kids drive it.
Andrew Campbell: You’ve really got to be careful.
That’s why it’s so important to really improve your score quickly so if you have to get a different car you get a better rate with better dealers.
Figure out what kind of credit score you need to get to the good dealers.
Ask them. Say, “Look, what kind of score is it going to take for me to get a car from you? What do I need?” Find that out. Do your homework. Look for that.
Once you have that information you can work on getting your score up.
If you’ve got a crappy car but you own it and it works, by all means, keep using that until you can get your credit score high enough to get into dealing with a reputable car dealer that sells decent quality cars.
Most of my clients feel very good a few months after getting their discharge.
When I first see them they are stressed out and feel guilty for even considering filing.
In the end, they almost always tell me that they feel so relieved that they filed for bankruptcy because it allowed them to get on with their lives.
I consider these to be the best kind of success stories.