What Are My Chance of Buying a Home After Bankruptcy? - Ruth
Posted April 25, 2013
WRAL Reader Asks
I am a widow now and need to purchase a home
I went through bankruptcy at the end of 2005/2006 and want to know what are my chances of getting a loan to purchase a home.
I have purchased a car in 2007 and have paid good. No other credit. the last time I had my credit report checked was in Feb of this year and the score was 640. Also, what are my chances of getting a good interest rate.
I've got bad news and good news. Let me get the bad news out of the way first. If you had followed the advice I'm going to give you you'd already be in excellent shape to get a mortgage. Since you have not done that yet, you'll just have to work hard at it and I would think it will take a year or so to get back to the better rates.
Now for the good news.
It is entirely understandable that when people file bankruptcy they either equate credit with pain and want to avoid it or they have heard all sorts of urban myths about not being able to get credit. Nevertheless, both actions scupper your chances of rebuilding your credit quickly.
The reality is it is not the credit that leads to problems. It's the debt. It's the debt we want to avoid, not the credit.
Rebuilding your credit after bankruptcy is something that should begin on the day you get your discharge papers. If you do that then within a year you'll be qualified for good rates on a car and within two to three years you'll be qualified for excellent rates on a new mortgage.
When you avoid new credit your credit history after bankruptcy ends on a downer. But think about your credit report like a report card in school. If you wanted to bring up your grade point average you needed better grades to do it. If you want to bring up your credit score you need good current credit to do that.
While having a car loan is better than nothing, it is a secured debt and counts less towards your credit score.
What you need to do is get a few unsecured major credit cards like a Visa, MasterCard, American Express, or Discover that report to the three major credit bureaus. There need to be credit cards, not debit cards with those logos on them. Debit cards do not build credit.
In my guide, How to Easily Rebuild Your Credit and Have Good Credit Again, I lay out the step-by-step process to getting your credit back in shape.
Right now your credit score is not great and unless we focus on bringing it up before you apply for your mortgage you are going to wind up paying much more than you need to through higher interest rates.
If you wanted to, get your consolidated credit report as I describe in the guide and bring it to the next Get Out of Debt Guy support group meeting in the Raleigh area and I'll look it over and point out any other issues that might need to be addressed. All of my help and services are offered for free to consumers so don't feel like there are any catches.
I'm confident if you get right on this and start rebuilding your credit, you will be able to get that mortgage in the future.
WRAL Get Out of Debt Guy
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