I host Question & Answer sessions for students who need help rebuilding their credit score. Removing a bankruptcy from a credit report and rebuilding credit after a bankruptcy are both frequently asked questions on these calls.
Below is one of the many questions I received and my response.
Question: Can you give me the specifics on how to remove a bankruptcy from my credit report?
Answer: Forget all you’ve heard about how to remove a bankruptcy from your credit report because I have a very different approach to this topic.
First of all, I assume your bankruptcy is legitimate. You, not someone else, are responsible for it. This simply means you are not a victim of identity theft and the bankruptcy on your credit report is legitimately yours.
With that assumption, here is my answer: You cannot get it removed and you should not worry about getting it removed. Wait! Before getting discouraged and losing hope, let me explain my approach to handling bankruptcies.
It isn’t necessary to remove a bankruptcy from your credit report. Yes, that’s right. Even though a bankruptcy is on your credit report, it will not prevent you from reestablishing your credit after bankruptcy. Don’t believe the statement that your credit is ruined for seven years. You can have a 720 Credit Score in just two years after the bankruptcy.
Don’t search for someone to help you remove a bankruptcy from your credit report. Many people and/or organizations will say they can help you remove a bankruptcy for a fee. Don’t believe them! They will tell you they can remove a bankruptcy from your credit report and may offer a “100% money back guarantee.” The truth is that you won’t be able to get your money back. There are no legal ways to remove a legitimate bankruptcy from your credit report. Save your money and avoid these scams.
Removing a legitimate bankruptcy from your credit report is illegal! According to the FTC, it is illegal to get an item off your credit report that is correct.
Here is the one simple solution that works every time: Reestablish your credit after a bankruptcy the same way you established credit the first time. Start now, don’t delay.
Learning to rebuild credit is simple, just keep in mind that it’s going to take you between 12-24 months to get a credit score over 720, assuming you do it the right way. The biggest mistake people make is wiping their hands of all credit. Never do that because no credit is just as bad as bad credit.
Please check out my free ebook: “Rebuilding Your Life After Bankruptcy… It’s Easier Than You Think” You will learn a lot of very valuable information.
Category: Bankruptcy
5 Steps to Rebuild Bad Credit
We live in a credit-driven society. You need credit for just about everything from buying a house to getting a job. Since many people use credit in lieu of currency, it is no surprise that many hard-working people have not managed credit wisely. As a result, they have bad credit. But there is hope. Here are five steps to rebuild bad credit.
Before examining the steps to rebuild your credit, let’s see how the credit bureaus determine our credit scores. There are 22 different criteria for determining a credit score. Unfortunately, the only ones who know the actual formulas are the credit bureaus. Not much information exists on rebuilding credit. Therefore people often make common mistakes that seem like the right choice, but in the end these choices hurt their credit score.
If you have bad credit and want to increase your credit score, follow these five steps. Prior to doing anything, you need to make sure you know your credit scores. Odds are you wouldn’t build a house without a blueprint. Your credit scores are the blueprint of your credit history. The only way you’ll know what corrections are needed is to get your credit report.
Quick Fix #1: Check for Errors
One of the most common sources of a bad credit score can be attributed to reporting errors. Check your credit limits first! Make sure your credit limits are reported correctly because your credit limits are used to determine your utilization rate. This rate is based on the percentage of your credit limit you use each month. If your credit limit is not reported correctly, your utilization rate will not be accurate. A high utilization rate lowers your credit score.
Also check for duplicate notices from collection accounts that are being reported as active. Often a collection account is transferred to more than one collection agency. All of these collection agencies might be listed on your credit report. That’s not a problem, but only the agency currently trying to collect the debt should be listed as active. All other collection agencies should be listed as transferred since they are no longer responsible for collecting the debt.
If more than one collection agency is reporting the collection account to the credit bureaus as active, you have a problem. Since the single collection account is reported as two separate accounts, your credit score will be lowered.
Quick Fix #2: Reduce Your Credit Card Debt
Most people do not know why the amount of their credit card debt is significant because it has never been explained to them. I call this tip the 30/30 rule. Thirty percent of your credit score is based on your outstanding debt. If your credit balance is more than 30 percent of your credit limit, your score will drop. Here’s an example: If your credit limit is $1,000 and you charged $600, you are at 60 percent of your limit in debt. When you’re over 30 percent of your limit to debt and you’re only paying the minimum monthly payment each month, your score is going to drop, even if your monthly payments are “on time.” You must reduce your credit card debt to 30 percent or less to maintain the 30/30 rule and rebuild bad credit.
Quick Fix #3: No Credit Equals Bad Credit
Credit scores are based on the information in your credit history. If don’t have a credit history, you are treated like the person with bad credit. When evaluating your credit worthiness, companies would rather lend or give better interest rates to those whose credit history proves they are a good investment. Think of it this way: Let’s say you needed heart surgery, and you met a guy who said he was the best heart surgeon in the world. He might be the best heart surgeon in the world, but if he had no credentials and no references, there’s no way you’d ever let him open up your chest.
The credit scoring bureaus think of you the same way. If you don’t have a credit history, they consider you high risk. Prove your credit worthiness by getting three to five credit cards as well as an installment loan. Doing this will help rebuild your bad credit and provide enough information for credit bureaus to judge your risk fairly.
Quick Fix #4: Becoming an Authorized User
If you don’t have much credit (less than three major credit cards and an installment loan) or have bad credit and want to rebuild your credit, you may want to explore becoming an authorized user. Ask a relative with good credit to add you as an authorized user to their account. It helps if you and your relative have the same address.
Becoming an authorized user allows you to piggy-back on your relative’s good credit standing and reap the benefits of their credit history. This only works if the credit card company reports your status as an authorized user to the credit bureaus and if the outstanding debt on the card never exceeds 30 percent of the credit limit. While this is a great way to improve your score, if the account falls into poor standing, your credit score will also be negatively affected.
Quick Fix #5: Use Credit!
It’s natural to steer clear of credit if you have had bad credit. Avoiding credit is not helpful when it comes to rebuilding your credit. The only way to rebuild bad credit is to establish a credit history. For more information on why this is so important, get my free e-book Credit After Bankruptcy & Foreclosure. Although bankruptcy or foreclosure may not apply to you, the information in the booklet is still valid for anyone rebuilding bad credit.
Protecting Life Insurance During Bankruptcy
Bankruptcies are difficult emotionally and financially because your creditors are intent on recovering the debt you owe them. That’s fair. But you must protect what is allowable by the Federal or State Government to give you a financial footing afterwards. Don’t forget to protect your life insurance when filing for bankruptcy.
When going through bankruptcy, make sure everything is not taken from you during the process, including your savings. Protecting your life insurance is important. If you overlook this, creditors may leave your family with nothing after your death.
Paying creditors is important, but you must also prepare for life after bankruptcy. Creditors aren’t interested in you or your family’s financial status. They want whatever they can get. This means you may end up in a hole that is nearly impossible to escape. Protect your safety net!
What is protected?
Life insurance is too important to give up. If you were to pass, the money helps pay expenses so your family does not end up financially strapped. To prevent creditors from taking everything, you need to understand what you can do. Under federal exemptions, you can protect up to $12,250 (check the current amount allowed) of a life insurance policy’s cash value. Married couples can double all exemptions under the federal bankruptcy code. Check with your bankruptcy lawyer to ensure all allowable assets are protected, especially your life insurance policy.
If you are afraid the bankruptcy will take your life insurance, make it exempt. This will give you the chance to keep your money, or at least some of it, to assist your family later.
Know the cash value amount your state allows you to protect. All states are different. Get professional help, if needed, to take advantage of all you can. An option is cheap life insurance. It protects you because it puts you under the maximums of several states. This makes it possible to keep all your money.
Taking all allowable exemptions can give you peace of mind, which is what you need during a stressful time. As long as you qualify for the exemption, take it! Enjoy the security of knowing your family will have something, regardless of the situation they find themselves.
Buying Life Insurance After Bankruptcy
Waiting for your bankruptcy to be completely off your records is not a good excuse to delay applying for life insurance. If cost is an issue, consider getting a 10-year term policy to make sure your family is protected. This gives you something until you are back on your feet. The only risk is failing health which could make purchasing life insurance ten years later more expensive or unattainable.
Before applying for affordable life insurance make sure your bankruptcy is completely discharged. Most insurance companies won’t underwrite you if you’re in the middle of the bankruptcy process. If the bankruptcy has been discharged, you shouldn’t have any problems finding an insurance company willing to underwrite you.
The Internet is filled with free online term life quotes that allow you to get a quote in minutes. Be sure to let them know you have filed bankruptcy recently. One of the biggest mistakes people make when applying for life insurance is not being truthful with the carriers. They will know if you have a bankruptcy. If you lie, it will hurt your chances of getting approved.
Understand Your Options
If you are facing bankruptcy, it is important to do everything possible to benefit you and your family afterwards. Don’t let creditors take your legally allowed exemptions. Protect them! This gives you and your family a financial cushion afterwards. As creditors fight for what is theirs, you must fight for what is yours. By taking advantage of what is available, you can keep yourself in the green and make it easier to get back on your feet after bankruptcy.
Steps to Take After Bankruptcy to Rebuild Credit
After a bankruptcy, rebuilding your credit may be the last thing you want to do. Avoid the urge to walk away from the loans and credit cards that precipitated the bankruptcy. Instead, focus on rebuilding your credit after bankruptcy. Whatever you do, don’t wipe your hands clean of credit.
Contrary to popular belief, using credit appropriately in the wake of a bankruptcy is the best way to rebuild your credit. If you follow a smart plan to re-establish your credit, it is possible to rebuild your credit score to 720 within a couple of years. This is the most important action you can take after bankruptcy.
This twofold plan begins with opening new lines of credit and concludes with paying your bills on time and in full. Therefore, keep small balances on your credit cards to ensure you are able to pay what you owe each month.
Rebuilding Your Credit after Bankruptcy Rule #1: Open new lines of credit!
Have you heard claims that you can have a bankruptcy wiped from your credit report? Do not believe these claims because they are not true. There is no legal way to wipe a bankruptcy from your credit report. However, time does reduce the impact of a bankruptcy on your credit report. All three credit-scoring bureaus—Equifax, TransUnion, and Experian—are more concerned with your recent credit behavior rather than your past credit behavior. The trick is to persuade credit bureaus to pay more attention to your recent good behavior than to your past behavior. By establishing new credit and using it responsibly, you can prove to the bureaus that you are a new person. Demonstrate to them that the bankruptcy forced you to get rid of negative credit habits and replace them with smarter financial strategies.
After declaring bankruptcy, open three new credit cards (Visa, MasterCard, or American Express) and one installment loan as part of your plan to rebuild credit after bankruptcy. Keep the credit cards active by using them at least every other month. Make only small charges, preferably less than 10 percent of the limit, and pay the balances in full.
Know that you will pay high interest rates with the credit cards and installment loan. This is one of the results of your bankruptcy. Another is that you will not qualify for the best interest rates with a low credit score. That’s why it is important to pay credit card and loan balances in full as quickly as possible.
Open credit cards and an installment loan as soon as possible after your bankruptcy. The credit-scoring bureaus respond best to accounts that have been open for a long time. Your future credit score is dependent upon opening all accounts now and paying them in full monthly.
By opening new lines of credit, you begin to rebuild your credit after bankruptcy. This allows the credit bureaus to re-evaluate your credit based on the new information it receives from your creditors. Experian, Equifax, and TransUnion are now able to judge your credit worthiness based on your current credit information. Use this as an opportunity to show them you have changed your patterns of behavior.
Don’t delay. Immediately begin proving to the credit bureaus that your bankruptcy allowed you to turn over a new leaf and change your payment behavior.
Rebuilding Credit after Bankruptcy Rule #2: Never, never, never make a late payment!
After a bankruptcy, the credit-scoring bureaus will have an eye on you, even as your score begins to climb. If you make a payment that is even one day late, the bureaus will assume you are back to your old ways, and your progress will be for naught.
The best strategy to rebuild your credit after bankruptcy is to pay your bills on or before the due date every month. This means that you must live within your means.
For more information on rebuilding your credit after bankruptcy, read this article on how to create a budget, find money, and establish habits that best afford you to bounce back after a bankruptcy.
Is Bankruptcy a Viable Option?
Many of you are wondering if bankruptcy is a viable option. If so, they also wonder if filing for bankruptcy will destroy them financially for the next seven years.
Whenever I get asked about bankruptcy, I consider the emotional and financial stress of the person asking the question. No one wants a negative credit history or to be known as an irresponsible person not worthy of credit.
Your past credit history is no longer a stumbling block. Here are some reasons bankruptcy may be a viable option for you.
If you have creditors calling you at all hours of the day and have bills piling up faster than you can pay them, filing for bankruptcy has crossed your mind. While you should always repay debts you owe because it is the right and responsible thing to do, filing for bankruptcy may be the only way you can make a clean break from your overwhelming financial crisis.
Depending on your beliefs, you may never feel bankruptcy is a viable option. But sometimes bankruptcy is the best option available to you.
If you are struggling financially and wondering, “Is bankruptcy a viable option?” consider other alternatives:
1) Debt consolidation. It allows you to combine all your debts into one loan. One payment is certainly better than multiple payments or robbing Peter to pay Paul.
2) Loan modification programs and reductions in payments are another option for distressed homeowners. Contact the hardship department for your creditors and ask them to consider a change in terms to help you make it through the financial crisis you are experiencing. Some banks are willing to accept reduced payments. They know that many people are teetering on the verge of bankruptcy. In fact, you might want to call your mortgage lender and ask: “Considering my current financial distress, is bankruptcy a viable option or can I qualify for a loan modification program?” Rather than having all your debt discharged during a bankruptcy, many creditors will simply lower your payments. After all, something is better than nothing.
“Should I file for bankruptcy if none of these options are available?”
If you have exhausted all options, you might want to consider filing bankruptcy, especially if you face the possibility of losing property. Bankruptcy enables many people to hold on to their property despite their financial woes. When considering bankruptcy as a viable option, evaluate your finances. If you are overwhelmed by debt and cannot pay the minimum balances due, bankruptcy can stop creditors from charging late fees and interest on your bills. It will also give you the opportunity to make a fresh start. Emotionally, you’ll feel better because you won’t have to worry about harassment from creditors, losing sleep, and worrying about your debts.
Please know that a bankruptcy will definitely lower your credit score, but if you cannot repay your debts, your credit will definitely suffer after several more years of collection notices and repossessions.
Once you declare bankruptcy, the next step is rebuilding your credit. Increase your credit score by changing your spending habits and paying your bills on time. You will slowly regain financial stability. In fact, if you are diligent about repairing your credit and establishing good financial habits, you might even qualify for a home loan within two years of declaring bankruptcy!
Ultimately, your question, “Is bankruptcy a viable option?” is a personal one. You must learn how to create a budget, consider all of your bankruptcy options, and then make a strategic choice. If bankruptcy is eventually inevitable, begin the process today so you can start rebuilding your future and your credit score.
If You Believe You Cannot Discharge Your Taxes During Bankruptcy, by 720 Credit Score
Most people believe that taxes cannot be discharged through a bankruptcy. And while this is true in most cases, there are some exceptions …
Did you file your taxes more than two years ago? And was the due date at least three years ago? As long as you aren’t evading taxes, in certain cases, you can have federal tax debt discharged during bankruptcy.
I bring up bankruptcy a lot in my emails because I want to demystify it. A lot of people who feel tremendous financial pressure are scared of bankruptcy, But bankruptcy can be a great solution to financial problems. It allows you to wipe the slate clean and regain control of your life.
And listen … living with constant anxiety and fear about what the government is going to do because you cannot pay your taxes? Well, it is no way to live. You should be able to get out of bed and embrace life. If you cannot enjoy your life because of financial stress, you owe it to yourself and your family to explore your options.
And fortunately, I have connections to some of the best bankruptcy attorneys in the country, so if you are up to your neck in tax debt, just talk to a bankruptcy attorney. The phone call won’t cost you a dime, and you will probably walk away from the call feeling relief, hope, and the promise of a better future.
Click here for an introduction to a bankruptcy attorney in your area.
Sincerely,
Philip Tirone
P.S. The bankruptcy attorney I will introduce you to will help get you on the path to financial recovery. My attorneys offer so much more than bankruptcy services. After filing your bankruptcy, then they focus on helping you reclaim your life. If relieving your financial pain sounds appealing, click here for an introduction to a bankruptcy attorney.
How to Remove a Bankruptcy From Your Credit Report
One of my readers recently asked me if there was a way to get her bankruptcy removed from her credit report.
The answer is that no, there isn’t. At least not legally. But beyond that, there’s a deeper issue at play here. A lot of people worry about their credit scores and their credit reports. They worry about past delinquencies. They worry about their public records. They spend countless hours trying to get information removed from their credit reports.
My advice: You are worrying about the wrong thing.
You see, items that are older than two years—even major items like a bankruptcy—don’t matter nearly as much as the behavior you have taken in the past two years. A lot of credit “repair” companies have their clients spend hours and hours of their lives trying to suppress every single derogatory item on a credit report.
I don’t agree with that strategy. First off, it’s illegal. The Federal Trade Commission itself says, “No one can remove accurate negative information from your credit file. It’s illegal.”
Second of all, even if you do somehow manage to skirt the system and get negative information suppressed, it will rear its ugly head later on down the line. And in the future, the credit bureaus will be unlikely to spend their time helping you remove any true errors from your credit report.
My third point is that it’s just not where you should be spending your time. I know how attractive it is to think that you can erase your past, but you can’t. And if you spend your time trying to cover up the past, you will waste invaluable time living in the present and creating a better future.
There’s only one solution: Learn how to build credit. Educate yourself so that you have the tools to have a great score for life. Learn from your past, but don’t focus on what happened yesterday.
The important part of improving your score fast, by 720 Credit Score
If I had to choose one thing as the most important aspect for raising your score after a financial meltdown, it would be this: Apply for new credit.
The problem is: How can you qualify when your score is low?
We generally refer people to secured cards, but even then: If you are already having financial problems, how can you afford the deposit required by secured cards?
Fortunately, our researcher, Natalie, found a new card that accepts applications for people with a score as low as 580. It’s not a secured card, so you don’t have to put any money down to qualify.
If you don’t have three cards in your name and cannot afford secured cards, you should apply for this card right away. Don’t wait, even for a day since we don’t know how long the guarantee will last.
Of course, we’ve done the research, and we believe this is one of the best subprime cards out there. It isn’t one of the 46% of cards that will hurt your score, so as long as you keep your balance low and pay your bills on time, this card will help your score increase.
Click here to apply.
Bankruptcy: It’s Not As Dirty As It Sounds
The truth is: Sometimes your credit score will be better off after declaring bankruptcy. And here’s why…If you are struggling with your finances and your credit score, and you do not see an immediate light at the end of the tunnel, you will probably continue to struggle for a few more years. As you fight to stay afloat, you will probably miss a few payments here and there.And your credit score will suffer. In two years, it will be exactly where it is now.
In fact, it might be even worse. And it won’t get better until your finances take a drastic turn. But if you declare bankruptcy today, and then start the process of rebuilding your credit score after bankruptcy, in two years, you could have a terrific credit score.
You have to take the right steps, of course, but if you do your research and know all about the process, declaring bankruptcy might end up being the best thing that happens to your credit score.
What Should I Do If I’m Deeply in Debt?
One of my friends just told me that he owes $68,000 in credit card debt. He’s 26 years old. And he has that feeling in the pit of his stomach—you know that feeling. He can’t ever truly relax because he’s so worried. All these questions start racing through his head…
- How I will ever pay all these bills?
- Will I ever have fun again?
- Are they going to sue me? And if they do, will my wages be garnished.
As I was talking to him, I was reminded of the last time I felt that way. Several years back, I carried a loan for a friend of mine. He was making a fortune, but he had declared bankruptcy a few years prior, so he didn’t qualify for the loan. So I foolishly agreed to carry the loan on his behalf. He would pay me; I would pay the bank. I knew he was good for it.
Until one day he wasn’t. The market took a nosedive, and so did his business. Suddenly, he couldn’t pay me one month. And his loan skyrocketed to $9,841 a month. I got that feeling. That terrible feeling. How was I going to absorb an extra $9,841-a-month when my own income was down?
The next month, he couldn’t pay me again. So I remember how it feels. It’s terrible, to put it mildly.
The trouble with that feeling is that it stops people from taking rational steps. They just want the feeling to go away. They’ll do anything to make the feeling go away. For some people, that means ignoring it entirely. Others start worrying so much that they cannot focus on the solutions in front of them. There’s so much emotion packed into financial problems that it’s hard to be clear-headed and strategic.
But here’s the truth: There’s always a way out. I’ve had clients who have owed hundreds of thousands of dollars in debt that cannot be discharged during bankruptcy—like most student loans and some back taxes. And there’s always a way out. Yet, you aren’t necessarily going to see it if you are panicking.
So here’s something I want you to try this week. Go sit somewhere peaceful and calm. Give yourself permission to feel that panic for five or ten minutes. Then ask yourself a question. Ask yourself: “If I were to consider every single opportunity for resolving this situation, what would be on that list?”
Then start making a list. It might include things like declaring bankruptcy, selling your house, or getting a second job. It might include things like dipping into your children’s college fund or selling your car and taking the bus.
These are things you might be thinking that you would never, ever consider. But don’t judge the things on your list. If you pile more fear on top of the fear you already have, you aren’t going to find a solution. The key is that you want to allow your mind to open up to all of the possibilities. Let it wander. Invite it to consider the absurd.
And see what you come up with. There are always options. In fact, the universe is filled with infinite possibilities. The question is: Can you see the options?
So take a deep breath. Believe that there is a way. And let me know what you come up with by leaving a comment below.
And one other thing because I want to give you an example of a solution that you might be afraid to think about.
Most people are terrified when they think of bankruptcy. Considering filing bankruptcy just makes them feel worse. But is it really that bad? I don’t think so. Bankruptcy allows people an opportunity to wipe the slate clean. It gives them the chance to start over, without having to feel financial stress day in and day out. And it also allows them to start rebuilding their credit score a while lot faster than if they just keep struggling to stay afloat for years on end.
But you won’t see options like this if you do not allow your mind to consider them. So if you would like a referral to a bankruptcy attorney, send an email to Info@720creditscore.com and we will put you in touch with a bankruptcy attorney in your area. Otherwise, keep us posted on your progress by leaving a comment below!
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