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You can start rebuilding your credit after bankruptcy. Here’s how.

by Rebecca McDowell, Contributing Author

Original article here

Bankruptcy provides substantial debt relief, but it also can have a negative effect on your credit score. Although bankruptcy stays on your credit report for up to ten years, your credit won’t be bad for that long. You can take steps to start rebuilding your credit after bankruptcy. This is important since your credit score and credit report can play a big role in renting an apartment, financing a vehicle purchase, or even getting certain types of jobs.

Here’s what you can do to speed your credit recovery after bankruptcy.

Use Credit Responsibly

It may seem counter-intuitive, but using credit is how you build credit. When you make payments on debts, your creditors report your payments to the credit reporting agencies. The agencies then list your payment history on your credit report, which shows potential new creditors that you are a responsible debtor.

If you have debts that survived your bankruptcy, such as student loans, car loans, or mortgage loans, you can also use these to rebuild your credit. By making your payments in full and on time on these loans and on any credit you obtain post-bankruptcy, you can increase your credit score and build a positive picture of yourself as a borrower.

Getting New Credit After Bankruptcy

If you discharged all your debts in your bankruptcy, you can still obtain new credit. Many creditors will offer credit cards with low limits to those fresh out of bankruptcy. However, use caution; these are often subprime lenders that make these offers, and you will most likely have a very high interest rate and a lot of fees. Another approach is to get a secured credit card, which is a credit card backed by a money deposit. With a secured credit card, your credit limit is the amount of your deposit, although the interest rates and fees can still be very high. For information on how to get new credit, see Next Steps to Rebuilding Credit — Getting New Credit.

How to Use Credit Wisely

When using credit post-bankruptcy, use it wisely. Do not spend more than you can afford; do not spend up to the limit. Make more than the minimum payment every month. Make your payments on time and pay it off when you can. Irresponsible credit use can have a negative impact on your credit. You want to show that you can pay back your debts as they come due.

You can do this by:

  • Making a budget and sticking to it. Figure out what you can afford to pay every month on your debts after paying your necessary expenses. If your food budget is $200 for the month, do not spend more than $200 that month on food – you could end up without enough money to pay your debts.
  • Only borrowing what you can afford to borrow. Once you know your budget, you know what you can afford. If you know that on your regular budget you could not afford a trip to Greece, don’t use your credit card to fund a trip to Greece. Stay out of the credit card trap and use the card only for things you can afford to buy yourself. That way, you know you’ll have the money to pay it back.
  • Setting up automatic payments so you don’t miss any. Many people opt to not receive paper bills, and it can be easy to simply forget to make your payments. By setting up automatic payments, you can have your payments deducted directly from your bank account every month on the due date.

Review Your Credit Report and Fix Errors

You are entitled by law to one free credit report from each of the reporting bureaus every year. You can request the reports online and review them to make sure they are accurate. Look for debts you no longer owe, balances due that are incorrect, or debts that are not yours. If you find any incorrect items, you can file a dispute with the credit reporting agency; the agency will investigate and make any corrections that are warranted. You may need to provide documentation to support your dispute. For information on what to look for in your credit report, how to request that the agencies fix mistakes, and more, see our articles on Cleaning Up Your Credit Report.

 

From Bankrate.com By Mike Cetera • Bankrate.com

Laughing woman talking on cellphone | Tom Merton/Caiaimage/Getty Images

You have missed payments on past loans. You have a large, unpaid medical debt. You once went bankrupt.

Whatever the reason, your credit score has taken a nose dive. But that doesn’t necessarily mean you can’t get a credit card. You just might not be able to get the card you want.

“First, credit seekers with a bad credit score will find it easier to get a secured card over an unsecured card even though it will require a deposit. Second, it is a much safer bet because payments and interest will be lower,” says Katie Ross, education and development manager at American Consumer Credit Counseling in Auburndale, Massachusetts. “If you can build a history of consistently making payments on time, then your score will improve.”

CARD SEARCH: Find the best offers for borrowers with bad credit at Bankrate.com.

Secured credit card

A secured credit card requires a cash collateral deposit that becomes the credit line for the account. If, for example, you deposited $500 into the account, you would be able to charge up to $500 on the card.

3 steps before applying for a credit card

There are some steps you’ll need to take first before applying for a credit card — secured or unsecured:

  1. Check your credit report. You want to know what the lender will see when it pulls your credit file. Get your credit report and score today, free and with no obligation, at myBankrate.
  2. Check your credit score.
  3. Ask the credit bureaus to fix any mistakes you find in the report, like a credit line that isn’t yours.

What’s a credit score?

A credit score is a 3-digit number — roughly between 300 and 850 — that summarizes a consumer’s creditworthiness.

The higher the score, the more able and willing a consumer is to repay a loan, lenders believe. The best interest rates go to borrowers with credit scores of 740 and higher. Generally, a “low” credit score is in the “fair” to “poor” ranges below.

Credit score ranges
Range Score
740 and higher Excellent
661 to 739 Good
601 to 660 Fair
501 to 600 Poor
500 or lower Bad

FREE TOOL: Get your credit score today from myBankrate.

Your credit score will help determine what type of credit card you should apply for. Any score below 600 lenders consider a high risk, meaning they are unsure you’ll repay the loan. If your score is in the 500s, getting an unsecured credit card may prove difficult.

“Once people cross the 600 threshold into higher numbers it increases the possibility that they would qualify for unsecured products,” says Bruce McClary, vice president of public relations and external affairs at the National Foundation for Credit Counseling, a Washington, D.C.-based nonprofit organization.

Your credit history counts

Your credit score alone won’t determine whether an issuer will approve your application. A creditor’s decision will be guided by what’s in your credit report. That may be why nearly one-quarter of all borrowers with a good credit score had their card application denied in 2014, according to the Consumer Financial Protection Bureau.

Mass market approval rates by Consumer Credit Score (MMI)

The odds are far worse for people with poor credit. Issuers approved just 27% of subprime (that’s a credit score below 600) applications, the CFPB found.

RATE SEARCH: Shop today for the best credit cards from our partners.

The National Foundation for Credit Counseling found 10 reasons that a credit card application might be rejected:

  1. Not enough existing credit
  2. Poor repayment history
  3. Existing lines maxed out
  4. Overall debt too high
  5. Too many credit applications
  1. Serious negative credit marks
  2. Insufficient income
  3. Unstable job history
  4. Too young to apply
  5. Errors on the application

“If you get rejected when you’re applying for a credit card, that may be a clear sign that you need to stop borrowing for a while,” McClary says.

In that case, he suggests reaching out to a nonprofit credit counseling agency to look for solutions to your financial problems.

But if you’re already addressing the reasons your credit is poor, you may consider applying for a secured card — even if you are eligible for an unsecured card — if the interest rate and fees are better, says Kathryn Bossler, a financial counselor with GreenPath Financial Wellness based in Farmington Hills, Michigan.

“Just because you can qualify for an unsecured credit card doesn’t mean it necessarily will be one you want.”

Questions to ask when applying for a secured card

There are a few key questions you’ll want to ask of any issuer before you apply. You’ll want to know:

  • What is the interest rate charged on the account? “If the borrower does not pay off the balance in full every month, the lender is able to charge interest on the difference,” Ross says.
  • What additional fees are associated with the account? “Most credit secured cards charge both an annual fee and a large penalty fee should the borrower go over their limit or miss a payment,” Ross says.
  • How long do I have to keep the secured card before I can get an unsecured one? “If you take out a secured credit card and have managed this successfully after about a year to a year and a half, the bank which issued the secured credit card will send you an unsecured card in most cases,” Ross says.
  • Does the issuer have affordable unsecured cards that I can eventually graduate to?
  • Does the issuer report my payment activities to the credit bureau? They’re not required to, but if they don’t the secured card will not help you improve your credit score. “If they don’t report your payment activity, you’re not doing yourself any favors by getting that card,” McClary says. “It’s just going to be a secret between you and the card issuer.”

Bossler suggests you start first with your bank or credit union. Because you already have a relationship with that institution, it may be more willing to extend credit to you.

7 Tips to Fix Mistakes in Your Credit Report
It’s not easy and it’s not quick, but at least we have tips you need to fix your credit report.
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Is your credit report telling lies about you? Credit report errors happen all the time, especially if you have a common name. Dispute them pronto, so you don’t end up paying more than you should for your mortgage and home owners insurance, or have trouble getting credit.
Tax papers stored in a home office
Avoid Costly Financial Mistakes

The 4 Dangers You Face If You Don’t Back Up Your Tax and Financial Records
Tax and Home Records Checklist: What to Keep and For How Long
Don’t Miss These Home Tax Deductions

Just remember: Removing errors is a DIY project. So don’t get baited by credit repair servicers (“Pay us before we do any work on your behalf;” “Don’t contact the credit reporting companies directly” ) — these pitches are usually scams. Instead, try these seven tips for fixing credit report mistakes.

via Disputing Credit Report | How to Fix Your Credit Report | HouseLogic

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Most Lenders consider 4 vital facts before giving you a residential mortgage: (click here for commercial mortgages)

(only the collateral is usually considered for a hard money mortgage, equity loan)

The four “C”s

  • Collateral. The value of the property you are borrowing against.

  • Credit. The way you have paid people in the past is considered a good indication of your willingness to pay money back in the future. 75% or more of loan originations involve the use of FICO credit scores.

  • Capacity. Do you have the income to pay this loan and still eat!

  • Commitment. How much of a cash down payment did you put down.

Why are these 4 things important?

Real estate collateral or Loan to Value ratio

Your mortgage will typically be a proportion of the value of the real estate. For example: the home has a market value of $100,000 and you want to borrow $80,000 as a first mortgage. This would be a Loan to Value ratio of 80%.

Let us assume for the moment that you are buying the house for full market value, that is $100,000. Where does the rest of the money come from, $20,000 plus the closing costs, pre-paids etc? It could come from your savings, it could come from a second mortgage, either a seller held second mortgage or another lender, it could come from a gift, perhaps from your parents. Or it could be a combination of these.

Lenders LIKE you to have your own money in the deal. If the other 20% is your money, this gives them a strong feeling of security.

How about if you are actually buying this $100,000 house for $70,000? Conventional lenders like banks will only lend you 80% of the market value or purchase price, whichever is LOWER. In this case they would lend you 80% of $70,000, or $56,000

Why is this? It makes the loan safer for them, they don’t really believe that you have got a great deal and they still want you to have your money in the deal.

But there are mortgage lenders, typically those that work with investors who will not be bound by a percentage of the purchase price. However they will usually lend you less than 80% of the appraisal value. These lenders are often called hard money lenders.

Why is the Loan to Value ratio important? Simple. If the lender has to foreclose on the loan because the borrower hasn’t paid, they will not only want to recover the principal outstanding, but also their legal fees and unpaid interest. Obviously this can only  happen if the house is worth more than the principal, legal fees and accrued interest. If they lent $100,000 against a home worth $100,000 this is not likely to be the case!

Credit

If you have a proven history of not paying other people on time, it is highly likely you won’t pay the lender on time. Let’s be blunt here. When someone has bad credit, what it really means is they just don’t pay their bills. Now there can be a good reason for this, and these are often taken into account. For example medical bills when someone has no health insurance. Or perhaps you went through a nasty divorce and your bank account was cleaned out. Maybe you started a business that failed and have now got a regular job.

But if there is a track record of car repossessions, credit card write-offs, unpaid utility bills etc. you come across as someone who is financially irresponsible. Unless the property is worth a lot more than the loan you want, you probably won’t get it.

Order your credit report on-line now.

Capacity

The lender wants to sure that you can afford to pay your mortgage and still pay your other bills. In fact, it is LAW in some states that lenders avoid residential loans that the borrower clearly can’t afford. They will consider your job history and your time on job. How much other debt do you have? Are you over extended? Conventional lenders use certain ratios to calculate your capacity to pay back the loan. A conventional lender is one like Bank of America, Wachovia, Wells Fargo Bank.

  • The mortgage debt ratio. This is the percentage of the new mortgage payment to your income. 28% is a typical maximum ratio on a conventional mortgage.

  • The total debt ratio. This is the percentage of your total monthly payments, including the new mortgage, to your income. 33% is a typical maximum ratio on a conventional mortgage.

Commitment

Commitment is usually shown by having your own money at risk. If you are buying a $100,000 home and put down an investment yourself of $20,000 you have made a big commitment and will not lightly walk away from your obligations. On the other hand, if you have none or little of your own money invested, you are much more likely to just shrug your shoulders if things get tough and walk away from your obligations.

Consistently, year after year, low down payment FHA mortgages loans have a higher default rate than conventional mortgage loans.

Free Hard Money Mortgage Qualifier Spreadsheet

 Your ALT-Text here Download our FREE Excel Spreadsheet to see how much of a HARD MONEY mortgage you qualify for, depending on your credit score, down payment etc. Note this spreadsheet is purely OUR opinion, it is not an offer to lend. Other lenders may be more or less conservative than the amounts shown here.

OR run the same hard money mortgage qualifier spreadsheet on-line here.

Maximum loan qualifier calculator for conventional or sub prime mortgage.

Post a FREE mortgage loan request on our site

You are invited to post a listing to borrow money secured by real estate on our site. Lenders will compete for your business.

Mortgage requests that don’t work on our site (or anywhere else for that matter)

We constantly see ads placed that look like this:

We have terrible credit and no money. Can someone please lend us money to buy a house, we really want one?”
OR
“I am a 25-year old student with bad credit and no money. I would like to borrow $6 million to buy a shopping center”.
OR
“Want 100% financing to buy apartment building. Zero down payment.”

PLEASE! Ads like this are just a waste of your time. You’re dreaming. Ask ANYONE in the street if they’d like to own a shopping center (or a hotel or an apartment building) if they didn’t have a dime of their own money at risk and it didn’t matter how bad their credit was. How many people do you think would refuse?

Would YOU lend your money to such an individual? Of course not. Because you know full well that the borrower has a high chance of default and you will end up losing money when you eventually go through the legal steps to re-possess on a probably trashed property.

If you have bad credit and no money the only ways to buy a home are to buy it for well below market price (and get a high interest hard money mortgage) or to get a lease option on a home.

Mortgage requests that do work

But let’s change them a little. Same facts as above but now the borrowers have found good deals.

“We have a house under contract. It has been independently appraised at $100,000 when fixed up. The tax assessment is $80,000. We have it under contract for $55,000. The appraisal states that it would cost $10,000 to fix it up. But we hope to reduce this as we will be doing much of the work ourselves. Our credit is not so good and we only have $2,000 to put down. We would like to borrow $65,000. We need $55,000 to close and have no objection to the other $10,000 being held in escrow pending inspection that the work has been done properly. We would need stage payments released. We are looking for a maximum loan period of 24 months as we intend to clean up our credit and then re-finance.”

“My uncle has owned a shopping center for the last 20 years. He owns it free and clear. He wants to cash out and retire as his health is not so good. The net income after expenses but before depreciation is $600,000 a year. This allows for a 5% vacancy factor and 10% for leasing expenses and professional management. He has offered it to me for $4 million. As I’m an inexperienced student I would keep the professional management in place. An appraisal would indicate a value of about $6 million.”

“We have been renting the same house for the last 8 years. The landlord wants to sell it as he is moving out of state. It is worth $100,000, which is the sales price. We are able to put $3,000 down, we will need a first mortgage of $70,000 as he has agreed to hold a second of $27,000. Our credit isn’t too good after an on the job accident that had me laid off for 4 months. But we have both held the same jobs for over 5 years now. This will be our only debt. We have paid-off our cars.”

“I’m looking for a commercial construction loan on a rehab property, with a cash-out option after the property is improved.

The property is a row house in a favorable suburb of Philadelphia. After-Repair Value is around $130,000, according to local realtors. I am purchasing the house for $66,000 plus a creative financing deal for the seller. It will cost about $13,000 to bring the house to top-notch condition — rehab items include porch repair, brick pointing, plumbing repair, new kitchen cabinets and a new heater.

I am asking for a loan of about 65% of the cash purchase price of the property, so I can begin repairs. Once the rehab is complete, I would like to convert to a short-term commercial equity loan at 75% of appraised value, to get my cash back out while I sell the house.

Here’s the challenge:

My business is brand new, and this is my first property, so the company has no credit history. My own credit was fine until 2001, when my employer went belly-up and I remained unemployed for 2 years, and grossly underemployed (worked at Radio Shack) for another 2 years. My credit score is now around 580, ENTIRELY due to events related to my unemployment. I have no employment other than my business. So, I’m a high risk for a lender.

In exchange for accepting the risk, I am willing to pay above-market rates, some points up front, and give the lender first position on all loans. The loans will be fully secured by the property itself. Plus, I’m going to pay my debts; I’m a good credit risk with some recent hard luck.

Please call ONLY if you are willing to shoulder the bad credit.

Thanks for your interest.”

The above loan requests will produce loan offers. If you have little money, bad credit and are paying just about full retail price for a house, the only way you are likely to get financing is with: a lease option, seller financing or some government sponsored schemes.

How to write an effective listing.

Place a listing for money you wish to borrow. 

We recommend that you are proactive in your search for the money you need. After placing your ad, find it and use the “Email this ad to a friend”  button to send your listing to possible lenders you will find on our list of lenders.

Look for lenders.

Definitions

LTV means Loan to Value. If your property is worth $100,000 and you want to borrow $60,000 your LTV is 60%.

Excellent credit means no late pays in last 12 months. No foreclosures or bankruptcy last 7 years.

Few blemishes means few late pays in last 12 months. Foreclosure or bankruptcy over 4 years ago.

Poor credit means many late pays. Foreclosure or bankruptcy within last 4 years.

Terrible credit means currently in foreclosure, discharged from bankruptcy within last year.

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