Jen Pfeffer, Real Estate Pro in Charleston, SC

What is the best way to rebuild your credit after filing a chapter 7 bankruptcy. What will help get scores up quicker ?

Asked by Jen Pfeffer, Charleston, SC Tue Sep 27, 2011

I have a client who just had his chapter 7 discharged and wants to start planning for the future to buy again when he can. I'm not sure how to advise him.

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7
Shane Milne, Mortgage Broker Or Lender, South Jordan, UT
Wed Sep 28, 2011
BEST ANSWER
1. Check that all accounts that were included in BK are not showing balances
2. Check that all accounts that were not included in BK are not showing that they were included in BK
3. If there is no existing credit before the bankruptcy that has been kept open through the bankruptcy, then I'd recommend to open at least 4 or 5 credit cards and use them responsibly (groceries, gas, etc. & paying them off each month). Probably will need to open up a couple, wait 6 months, before they'd be able to apply and get approved for more.
4. For every trade line that survived through the BK (such as a federal student loan, car payment they maintained payments on, credit card with a $0 balance they've always been responsible with, etc.) make sure they maintain on time payments on it as well as do no close it (if it's a revolving account).
5. If they have no installment loans, and have a car they could take out a small car loan on and make payments on it for 12-24 months that will also help their score (diversity of accounts makes up a good percentage of the score), or if they need a newer car & need to finance it then that would take the place of the small installment loan, or they may be able to qualify for a small personal loan from their bank.
6. This won't help their score, but if they are renting from a private landlord then they should be paying by check so there will be 12 months of 3rd party verification that rent has been paid
7. Also it won't help with credit, but a month or two before they are serious about buying again they should attend a homebuyer education course (this results in easier loan approvals as it's considered a compensating factor to an underwriter)
0 votes
Jim Simms, Mortgage Broker Or Lender, Louisville, KY
Wed Sep 28, 2011
I agree with Dan, don’t look back, move forward and re-build credit. EVERY “credit repair expert” that has solicited referrals from me tells the client to dispute everything negative on their credit report including accurate information. That is fraud when it is done in order to obtain financing, period! That is why I do not refer my clients to any credit repair company. It is what it is. Besides, would you trust any professional that tells you to lie about something in order to get a loan? Yeah, yeah, yeah, there is a Federal Law that protects the consumer, I know all about it, personally read it, is not there for the purpose of committing mortgage fraud. You Realtors work hard enough and don’t need the trouble possible from white collar crime. Just making such a referral could put you in the hot seat.

In addition to secured credit cards, some store cards are also easier to obtain. There is no secret when it comes to the credit score matrix for building a good score; most credit report companies offer a service to review a report. The one I use charges less than $100 for two borrowers depending on the number of accounts involved. The best part is they do not suggest doing anything illegal; find a local loan officer that has access to such a program. Fair warning, it isn’t a short cut, just a legit service that offers guidance.
1 vote
Terry McCarl…, Agent, Cape Coral, FL
Wed Sep 28, 2011
I think they would be well served to speak with a financial planner. Also, as Dan mentioned secure credit cards are very helpful in rebuilding credit. I have heard some real horror stories about credit repair companies but those were based here in Florida so I have no idea what the ones in South Carolina are like. Best of luck to your clients - they can recover - it just takes time.
0 votes
Jo Soss, , Bremerton, WA
Wed Sep 28, 2011
All good answers below. A good start is for them to pull their credit report. Sometimes during a CH7 not all items are reported correctly. It is very easy for a person to dispute items through the agency process on their own. I have seen scores change dramatically just by cleaning that up. Then the slow process to build credit. Having two revolving accounts and an auto loan will help. The interest rates might be very high. I had a client whose car loan after CH7 was 28% but it did build his credit. Different loan products look at bankruptcy differently. Are they VA eligible? Working with a lender is a great idea.
0 votes
Annette Law…, Agent, Palm Harbor, FL
Wed Sep 28, 2011
Jen,
The mortgage professional to whom you refer your buyers for pre-approval would most certainly provide this type of guidance to your folks.

At the very least call your nearest stage coach banker and introduce yourself. Those in my part of Fl have proven themselves very capable, reliable and they do remember who referred the citizen. The bank indicates they know what they want so let them plan the recovery process for this citizen.
0 votes
Jeffery Sklar, Agent, Las Vegas, NV
Tue Sep 27, 2011
Jen,

If your client has money, Las Vegas has some incredible credit repair companies. I recommend http://www.crnevada.com. Ask for Harry. He does a great job and has a money back guarantee for 3 years. It is not cheap but neither is having bad credit.


Jeffrey Sklar
Broker
Southern Nevada Property Management
8871 West Flamingo Road Suite 202
Las Vegas, NV 89147
702-522-6764 Office
702-408-6470 Cell
888-203-2779 Fax
http://www.WeRentVegas.com
jeff@snevpm.com
Web Reference:  http://www.crnevada.com
0 votes
Dan Tabit, Agent, Issaquah, WA
Tue Sep 27, 2011
Jen,
Secured credit cards with their bank or credit union is a first stop. Tell them to use the cards and pay them off monthly for groceries or items they are buying anyway. Auto loans can be had with a recent BK if they buy the right car, with either enough down or dealer incentive. They will pay a very high rate, but will rebuild credit. Tell them to keep it simple and only consider what they can easily afford.
0 votes
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