How to Improve Your Credit Score After Filing Bankruptcy in Michigan
In my 28+years of practice as a Michigan bankruptcy lawyer, one of the most common questions or concerns I get from my clients is “How can I improve my credit score after filing bankruptcy?” and “When will I be able to purchase a house or car after bankruptcy?”
I encourage my clients to avoid credit cards and to purchase used vehicles with cash from savings or a tax refund if possible.
Tips to improve your credit score after bankruptcy?
First of all, in the vast majority of the 20,000 plus bankruptcy cases I’ve filed, my clients increased their credit score simply by filing their bankruptcy petition. Their credit scores were already so low due to judgments, collection agency activity, repossessions or charge-offs, that the bankruptcy discharge, which virtually eliminated or wiped-out thousands of dollars of debt helped reduce their debt-to-income ratio which resulted in an improved credit score. With some simple tips, it should be very easy for most people to reach a 700+ credit score within 2 years of your court ordered bankruptcy discharge. Here are some tips.
1. Pay your Bills on Time
Seems simple enough, but with our lives as busy as they are today, it’s easy to forget to pay a bill on time, and this can be very damaging to your credit report. The best thing to do is to put technology on your side. Up until just a few years ago, everyone had to physically write out a check and mail it to the creditor via the US Postal service, in time to make it there before the due date.
The best way to improve and maintain your credit score is simply to pay your bills on time.
These days, most companies offer some sort of an autopay feature in which your monthly payment will automatically be deducted from your bank account or debit card. Most banks offer an online bill pay system which can help pay on time. In my opinion, paying your bills on time and never being late is the best way to improve your credit score after bankruptcy. Take advantage of these autopay features. Your credit score is really nothing more than your credit history and about 35% of this score is based on your on-time payment history.
2. Use Credit Cards (wisely)
Most of my clients tell me that they receive credit card offers in the mail within a few months after filing their bankruptcy. Many of my clients never want to see a credit card again and destroy these offers. Good for them. They had a bad experience with credit cards in the past, charged too much and blame the credit card debt for causing misery in their financial lives. Contrary to what many people say, you do NOT need a credit card to live in today’s society. My parents never had a credit card. Despite never being wealthy, they either purchased items with cash or went without, but nevertheless, lived comfortable lives, without debt. Credit cards can be a good way to keep track of your finances, pay other bills on time with your credit card and its automatic payment feature and are a good way to re-establish your credit after filing bankruptcy.
Use them sparingly. Charge small amounts and pay them in full every month if possible. That way you won’t be paying any interest. Always pay them on time, and you will soon start getting other credit cards, which is a good thing, only if you use them sparingly and pay them on time. Avoid getting caught in a credit card trap. Avoid maxing out the cards and just paying your minimum monthly payment.
My clients report to me that they receive new credit card offers shortly after filing bankruptcy. Credit cards can help improve your credit score after bankruptcy if used wisely.
You will pay a ton of interest and soon be unable to use the cards anymore. Contrary to popular belief, you do not have to carry balances on your credit cards to obtain a good credit score.
3. Pull your own Credit Report at Least Once a Year
Just about every credit report I’ve ever seen has had some errors on it. Federal law allows you to go online and get a free copy of your credit report from the major credit reporting bureaus and review them for accuracy. The big three credit reporting agencies are Equifax, Experian and TransUnion and can all be accessed from AnnualCreditReport.com. All three bureaus have online forms in which you can dispute information that you believe is inaccurate. It’s easy and you can do it yourself. Don’t waste money on companies that offer to repair your credit. Credit bureaus are allowed to report all true and accurate information related to your credit history. Any company that promises that they can remove information that is true and accurate is most likely some sort of scam. If there is wrong information or other inaccuracies on your credit report, you can legally remove them, you don’t need a company to do this for you.
4. Finance a car (within your means)
The best car for most people is a car that is completely paid for and still gets you to work, the grocery store, doctor’s office, etc. I encourage my clients to buy used cars with cash from savings or a tax refund etc.
The best car is one that is paid for. But when that is not possible, be careful and shop wisely.
Sometimes that is not feasible and you need to finance a car. Financing a good car with a reasonable monthly payment can help you rebuild your credit after bankruptcy. Many car dealerships in the metro Detroit area will mail financing offers to my clients during or shortly after their bankruptcy filing. Most of my clients will actually get a better interest rate after they receive their bankruptcy discharge than they would have before the bankruptcy was filed. Again, be cautious and try to put down as much money as possible. Try to buy a used car as you will save thousands over the cost of a new vehicle. Be sure to ask about the finance charges. Avoid paying for extras like life insurance or expensive warranties and be sure to shop around for the best interest rate possible.
Feel free to call me at 313-962-4656 or email me at firstname.lastname@example.org if you are considering filing a bankruptcy case in the Detroit, Michigan metro area. I am a board certified specialist in consumer bankruptcy filing in Michigan. I like to help people get a fresh start and explore if a Chapter 7 or Chapter 13 personal bankruptcy can help you and your family get a fresh financial start in these difficult times. I always give free consultations. Call me today to see if I can help you.
Michigan Bankruptcy Attorney Walter Metzen is a board certified consumer bankruptcy attorney practicing in the Detroit bankruptcy court.