How Much Credit Do I Have to Reestablish After a Chapter 7 Bankruptcy to Buy a Home?
Filing bankruptcy can help you get a clean financial slate, but in doing so, it decimates your credit score and remains on your credit report for up to ten years. However, it is possible to reestablish your credit after bankruptcy, and eventually rebuild your finances to the point that you can buy a home.
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When to Begin
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The time to begin reestablishing your credit is the date your bankruptcy is discharged. Because your bankruptcy will remain on your credit for years, it's important that you start proving your ability to manage credit wisely as soon as possible, in order to mitigate the damage. The sooner you begin repairing your credit, the faster your credit can rebound, and the better your chances of securing new credit, such as a home loan.
Existing Credit
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Any debts you reaffirmed in the bankruptcy or that were not eligible for discharge, such as a car loan or a student loan, are a great place to start when it comes to reestablishing your credit. Even if you were behind on these payments before the bankruptcy, it's possible to use them to rebuild your credit. Since these loans have probably been established for several years, they are the oldest accounts you now have. Make your payments in full and on time every month, and soon these accounts will reflect favorably on your credit.
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New Credit
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Whether you have existing credit or not, establishing new credit can help you rebuild your credit. One of the best ways to reestablish your credit after bankruptcy is by applying for a secured credit card, which is backed by a deposit you make in the amount of the credit line. After twelve months or so of using a secured card wisely, most lenders will be willing to take a risk on you and offer you an unsecured card.
How Much Credit Before a Mortgage
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The more credit lines you have established with a history of on-time payments and low balances, the more attractive you are to creditors. After reestablishing your credit with the secured credit card, it may be a good idea to open up other lines of credit, including additional credit cards and installment loans, such as that for a car, motorcycle or other item. However, do not open several accounts at once, and keep balances low on revolving credit accounts like credit cards.
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