Building Good Credit after Bankruptcy

f you are one of the millions of Americans who have declared bankruptcy and think you have “bad credit”, it may not be as bad as you think. Though your credit score may fall as much as 200 or more points after a bankruptcy, it is possible to qualify for 100% financing with a VA loan just two year after filing Chapter 7 Bankruptcy.   VA loans only require two years compared to FHA of 3 years and conventional of 4 years.

Re-establishing credit is the key to getting a VA loan. To do this, get a credit card.  Many credit cards will have very high interest rates for those who have a bankruptcy on their record but credit cards do exist for those with less than ideal credit ratings. They might also have fees. Even if the credit card you can get only has a limit of $200, using this to re-establish a credit history will count.  Whatever the limit, if you can get a credit card, keep a very low balance and pay it off monthly. It would even help to pay a balance off early. Just remember not to apply for too many credit cards. When your credit is checked too many times by credit card companies in a short amount of time, your credit score might be lowered.

If you are not able to get a credit card, use a secured credit card. This is one that is backed by funds you have provided. This is done by opening a savings account that secures the credit limit on the plastic card.  Be sure that you get a secured card that is reported to the credit bureaus but NOT reported as a secured card. Some secured cards are not reported to the credit bureaus. Some are reported as a secured card and this could hurt your credit by alerting creditors that you have a troubled credit past and are using a secured card.  Once you get a secured card, be sure to also pay this off on time. It is another way to show potential creditors you are not the risk you once were.  This will help you establish a history of paying off on time, increasing your “worthiness” each time.

Getting a secured loan is another way to help increase your credit rating. Secured loans are loans with collateral backed it up.  Collateral is something that you own outright that is of monetary value. Some items that can be used as collateral are cars or jewelry.  Failure to pay would risk loss of the collateral, so beware but the rates are usually better than unsecured loans.

If you have a friend or relative with strong credit, ask them if they will co-sign a loan with you. This gives the lenders some peace of mind that the co-signer with stronger credit is also responsible. Though this is a slower way in improving your credit score than that as a single signer, it would still affect you and your co-signers credit rating so long as you pay all payments on time.

All other bills count towards your credit that you may not be aware.  Credit reporting agency Experian stated that it may also include rental history in its credit profiles. Some small apartment complexes might not report rent history, but most mid to large sized property management companies which use special software, will report to the credit bureau.  Ask your management company if they report their data. Showing rent paid in a timely manner will help your credit in the long run. Besides the rent, your cell phone, utility bill, and any other payments you make all count towards rebuilding a better credit history.  Some cities have been known to report unpaid parking tickets or even library fines to credit agencies, so be sure to stay on top of everything!

WARNING: Just do NOT ever miss a payment on ANYTHING that reports your credit after your bankruptcy is discharged.  The VA lending is generous in giving you a chance to get a VA loan to buy a home only two years after a Chapter 7 bankruptcy, but they do not like to see ANY late payments reported to your credit after your bankruptcy discharge.  Think of it as having to prove yourself all over again to the credit bureaus.

Key Points In Qualifying for a VA Loan after a Chapter 7 Bankruptcy:

  • You can get a VA loan two years after a Chapter 7 Bankruptcy  in California
  • VA loan requirements only require two years after a Chapter 7 Bankruptcy to apply for a VA loan in California
  • Try to re-establish you credit after a bankruptcy by getting some low balance store credit cards and keep a very low balance and pay off monthly
  • Get a credit bureau reported secured credit card, but make sure it is not reported as  “secured”
  • Do NOT ever miss a payment on ANYTHING that reports to your credit after your bankruptcy discharge