How to Improve an FICO Score After Bankruptcy

When someone files for bankruptcy it goes on her credit record. If you're faced with this unpleasant situation, you can improve a FICO score after bankruptcy. Many people do not know much about how a bankruptcy affects a FICO credit score, and that can be costly. In order to improve a FICO score after bankruptcy, it's essential that you first understand how bankruptcy impacts your credit history and credit score, and what steps to take to raise your FICO score.

Difficulty: Moderately Challenging

Instructions

1. Understand what happens to a FICO score following bankruptcy. People almost always have a low FICO score at this point. However, when you go into bankruptcy, much of your credit history is expunged (deleted). The bankruptcy goes on your record, of course, but the removal of negative items like late payments usually offsets that. The result is few people see their FICO scores fall much after bankruptcy (some scores even go up). The second thing to realize is that the FICO scoring system puts people in bankruptcy into a separate category. The net effect is to put you in a position to improve a FICO score after bankruptcy, because what will count is your future use of credit, not your past history.

2. Monitor your credit record. You are entitled to a free copy of your credit report annually from each major credit agency (Equifax, Experian, and TransUnion). Studies by the Public Interest Research Group in the early 2000s showed over one quarter of all credit histories contain serious mistakes. Check your history and contact the credit agencies to correct any errors. Order your free reports from AnnualCreditReport.com (this is the only provider authorized by the Federal Trade Commission). Links to their website and to the FTC guidelines are below under Resources, or you may call 1-877-322-8228.

3. Make it your number one priority to pay all bills on time. This is the most important way to improve a FICO score after bankruptcy. If circumstances force you to run late, contact the lender and making arrangements to correct the situation. Provided you honor such agreements, many lenders won't report a rare late payment. Whatever you do, don't let a payment run 30 days or more overdue.

4. Open a secured credit card account if you no longer have any active credit accounts you can use. In order to establish a new history of making payments on time, you need to have payments to make, and this is a way to do that. Bear in mind secured cards have high finance charges, so use the card sparingly. Pay off the balance each month so you don't add to your credit card debt (see Step 5).

5. Pay down your outstanding debt. Depending on the type of bankruptcy and specific arrangements you have, your options here may be limited. Put a priority on paying off unsecured debt (like credit card debt) as quickly as possible. Reducing overall debt will raise a FICO score.

6. Avoid "credit killers" such as tax liens, defaulted debts, and foreclosure. Any of these will stay on your credit history for years and make it all but impossible to substantially improve a FICO score after bankruptcy.

Resources

• FTC Free Credit Report Guidelines
• AnnualCreditReport.com (FTC Authorized Site)

[jull14]

on 7/9/2009 Excellent article. To me it is very important to read articles at ehow specially yours, because I learned each day a new idea to make my life easier, thanks for writing this wonderful article. Keep up the good work.