Rebuilding Credit After Bankruptcy: 3 Critical Steps

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The following is a sponsored guest post by M. Sean Cydrus, an Ohio attorney specializing in bankruptcy.

Wading back into the murky world of debt can be nerve-wracking if you’ve just gone through bankruptcy. But if you have financial goals, it’s best to start now to work towards them.

Here’s your chance to take the “clean slate” that bankruptcy provides and run with it:

Step 1: Get your credit reports and credit score

First, request your free annual credit report.

Review the report to ensure everything is 100% accurate. All debts that were discharged as part of your bankruptcy should list a zero balance with “discharged in bankruptcy” or “included in bankruptcy” in the notes. The closing dates for these accounts should be within the month after your bankruptcy. Contacting the credit reporting agency and providing your “Discharge of Debtor” document should be enough to get this fixed.

Then, purchase your credit score (a good source: MyFICO.com.) This may hurt a little bit, as you see the full impact of bankruptcy on your credit score. But it’s important to know where you are to figure out how to improve, and to see how far you’ve come!

Step 2: Establish and stick to a spending budget

If spending is a problem for you, fix it first.

Create a budget that covers all of your living expenses, as well as some splurges like dining out and entertainment. Be sure there’s a piece of your income going to savings – 10% is a good place to start, although you may want more if you plan to buy a house or car in the next few years. After 90 days of keeping to the budget successfully, you can move to Step 3.

Step 3: Build positive credit

You have to use credit in order to build it. So next, you need to open a new credit account.

The best place to start may be a secured credit card, which is a card where you deposit money in advance that is used to pay for charges. Talk to local banks to find one with little to no upfront fees, and make sure the card will be reported to the credit agencies. Then, use it wisely, and put some extra money aside so that you can eventually deposit more money to raise your credit limit.

Many filers are surprised by an avalanche of credit offers after bankruptcy, but it’s actually very common. As you’re prohibited from filing for bankruptcy again for several years, credit card companies may see you as an attractive new customer. The credit offers received are typically unsecured credit cards. If you can get one, go ahead, but make sure it has no annual/up-front fees and that you pay the balance in full each month.

Your goal over time is to have a couple of accounts with banks and credit unions that are in excellent standing. Request a raise in your credit limit every 12 months, and pay the bill in full every time. This will do wonders for your credit score.

So when can I get a mortgage?

The best terms for mortgages go to buyers with good scores and sizeable down payments. Start saving and building credit now, and you’ll be ready to buy soon enough. A good rule of thumb is to wait two years before a home purchase. By then, better credit scores mean better mortgage terms, which means more house for less money – always a smart play.

Remember, your credit score can and will rebound quickly if you’re smart about your finances after bankruptcy. The end goal is a stable financial future and positive credit profile, which is completely within your reach.

M. Sean Cydrus is a bankruptcy attorney focused on helping individuals and families struggling with debt. His practices in Columbus and Chillicothe, OH, are dedicated to a personal approach to debt management. Find more information on bankruptcy at http://www.ohiodebtsolutions.com.

Andrea’s note: As someone who has experienced bankruptcy, I can tell you that these tips are extremely helpful for rebuilding your credit. My attorney didn’t offer me any advice; he took my money, showed up in court, then I never heard from him again. If you’re near the Columbus, OH area, consider contacting M. Sean Cydrus for help with your debt questions.

Creating a Single Mom Budget

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This post is the first in a three-part series on budgeting for single moms (and dads!). Our needs are different from those of the general population, so I think we need budgeting advice that reflects those differences. Check back for the next part of the series coming soon!

Being a single parent sucks sometimes. There’s no safety net from a spouse’s income when things go wrong. No one to take your kids off your hands when you’re stressed to the max. It’s just you, your offspring, and the desire to keep them from growing up to be stereotypes.

When I read articles or blog posts about budgeting and saving money, I find myself irritated by some of the “helpful tips” offered to readers. We’re told, Get rid of cable! Stop eating fast food! Uh, yeah. Do those people even HAVE kids? If they do, I would guarantee they have a spouse or significant other helping them out. As for the rest of us who are doing this on our own, I propose a new type of savings strategy.
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Just Ordered My Business Cards!

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There are only 81 days left until the Financial Blogger Conference and I feel like I have a million things to do before time to go!

I’ve experimented with a liveblogging app for my phone that would allow me to post in real time from the conference. I don’t know if I’ll use it (since I’m sure I’ll prefer paying attention to the speakers), but it’s fun to know it’s there. I’ve also started making a preliminary list of things to pack…. Yeah, I know that’s a little weird, but I’m like that! I can’t express how excited I am to be attending the conference, and as a result I’m trying to get organized.

Today I finally crossed one thing off the list - ordering business cards for my blog. And they are absolutely beautiful!

Check out the front and back views:

 

 

 

 

 

The colors look a little off because of the format I had to use to upload them. The cards were created by the same designer who made my logo, and I’m super impressed with her work!

Oh yeah, you know you want one. You’ll have to come to FINCON11 to get it!

What about the rest of my PF blogger peeps? Are you as nerdy in your excitement as I am? When can we start a discussion about what to wear??!?!?!?!

If I Had a Million Dollars

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This post is part of a Yakezie post meme created by Sandy @ Yes I Am Cheap. Participants are supposed to imagine that we’ve inherited or won $1 million and discuss what we would do with the money. Go check out the roundup of all posts in this series.

 

It’s hard for me to think seriously about what I’d do if I won or received a million dollars. After all, it’s not like that ever actually happens to people! For the sake of this meme, though, I’ll do my best.

What I’d Spend it On

First (and most important), I’d hand half the money to someone smart enough to invest it for me. This would allow me to stop freaking out about retirement. Well, actually I guess I could somewhat stop worrying about money in general! I know this sounds boring but it’s the best thing I could do with a lump sum of money. (Remaining balance: $500,000)

Second: Pay off debt. This includes my house, car, student loans, and my parents’ house and car. Altogether this would eat up probably $300k, which is totally worth it. (Remaining balance: $200,000)

My next step is probably the most fun to think about - I want to give away a crap ton of money. Like leaving a $1000 tip for a waitress. Or walking up to a mom struggling with three kids in Walmart and giving her $10,000. Or paying the guy who sells produce in a local parking lot $5,000 to take a day off and hang out with his family. Of course, this would require a camera crew so I could capture the looks on their faces, but I’ll assume someone would donate their services for something so awesome. I would do this for total strangers only, not the random friends and acquaintances who I’m sure would be lining up with their hands out. (Remaining balance: $100,000)

Finally time to do some selfish stuff with my money!

I want to finish my basement. I want some flipping bedroom furniture already! I want my backyard fenced in and a new deck. I want a pony. (Seriously. I really do.) I want clothes that actually fit, more shoes (like I need more shoes), and one of those super expensive stand mixers. And I’m sure my son could come up with a billion video games and toys he can’t live without. (Remaining balance: 0)

How My Life Would Change

Obviously that fictional million dollars would change everything. No more debt, no more working full time for someone else, no more using a stepstool for a nightstand.

I would have unlimited time to spend with my friends and family. No pressure to do things because I “have” to. To be honest, I worry that I’d become incredibly fat and lazy! I can’t imagine a world where I wasn’t either preparing for something, stressing about something, or wishing I had more time. I could picture myself having a nervous breakdown and begging for my job back just to have something to do (shudder).

I don’t know how people occupy themselves when they don’t have to do anything. And I know a million dollars isn’t all that much money these days, so it’s laughable to think it would solve all my problems. But as I’ve moved from a consumer mindset to one of concentrating on what truly brings me happiness, I find that it’s less about using the money to get stuff and more about using it as a tool to get where I want to be.

I don’t need a lot of things to be happy. I’ve got way too many things as it is. I just need the peace of mind that would come with being out of debt and financially secure. And that’s why I’m writing this post on this blog right now, and why I stopped recklessly spending in the first place - someday I want to know what it’s like not to freak out and worry. Is a million dollars going to fall into my lap tomorrow? Nope! But it’s nice to know I’d still be me either way.