Tuesday, May 22, 2012

Borrowing After Bankruptcy: 4 Tips On Improving Credit And Securing A Loan

Bankruptcy is a stressful process altogether, yet a great relief from most, if not all, of your overwhelming debts. Once the bankruptcy has been discharged, most people wonder if they would be able to borrow again. Besides giving you a clean slate, bankruptcy also puts a serious mark on your credit, signaling potential lenders that you have chosen to give up on your financial obligations once already. Bankruptcy filing may stay on your credit report for up to 10 years; however, it does not mean you would not be able to get loans and credit cards for that long. There are certain steps you may take to increase the chances of being approved for credit and to pose as a trustworthy borrower to lenders.

Get Secured Credit Cards to Boost Your Credit

Do not even dream of getting credit cards right after bankruptcy everybody you will apply with would simply reject you. While you may not be eligible for unsecured revolving lines of credit, most banks would gladly approve you for a secured credit card. The way secured credit cards work is very simple: you open a savings account with your credit card issuer, where money is held in escrow, and you get a credit card with credit limit being equal to your security deposit. Secured credit cards are being reported to credit bureaus in exactly the same way as traditional credit cards. As credit card debt accounts for 35% of your credit score, opening a couple of secured credit cards would greatly improve your credit ranking in as little as few months.

Show Responsible Banking Behavior

In addition to opening secured credit card accounts, it is recommended to demonstrate responsible banking behavior. Make sure you have both, a checking and a savings accounts open, and contribute a little from every paycheck towards your savings. Banks love people who are able to save, as they typically are more responsible and pose less risk of loan default. In addition, putting some money aside every pay period would help you to build an emergency fund for unforeseen expenses. Needless to say, that you should not bounce checks and go over your available checking account balance, as such is a clear indicator to lenders that your finances are a mess.

Apply for Small Loans First

Nobody is going to lend you a good chunk of money right after bankruptcy. However, few lenders may entrust you small amounts, typically ranging from 0 to ,000. While interest rates and terms on loans for people with freshly discharged bankruptcy are far from desired, such loans give you an excellent chance to prove that you have learned your lesson and are responsible with borrowing money. In addition, personal loans report to your credit file, further improving your credit score and reestablishing your credit history.

Use a Cosigner

If you have a family member or a friend whom you may ask to serve as guarantor on your loan, you should definitely exercise such an opportunity. Using a cosigner not only improves your chances of securing a loan but also saves you a good deal of money, as cosigned loans have lower interest rates and fees. Before taking a cosigned loan out always ensure you would be able to repay the loan on time, as failure to make your scheduled monthly payments would make your cosigner liable to repay the loan.

Despite following all above tips on improving credit rating, some borrowers may experience difficulties obtaining loans from traditional institutions: banks, credit unions, and credit card companies. The best way to secure a loan after bankruptcy is to use the services of nontraditional online lenders, as they have less stringent application requirements and are able to approve people even with major credit problems.

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