Your creditors will report to the credit agencies that the debt they hold is subject to your bankruptcy. In the case of an auto loan (or similar loan), it is common to continue to make payments to creditors while inside bankruptcy. These payments should be reported to the agencies as usual, and if made timely will begin to improve your score immediately.
Credit Score Calculation
In order of importance, your credit score is composed of six main parts:
- Payment History - Be sure to pay on time.
- Negative Items - Collections and Past Due.
- Available vs. Used Credit - The percentage of available credit used.
- Age of Credit History - Average age of your accounts.
- Number and Types of Accounts - The diversity of your credit profile.
- Recent Inquires - Running your credit for the purposes of borrowing.
To aggressively improve your credit score, pay your bills on time and keep your revolving credit balances below 20% of your credit limits. The diversity and age of your accounts are also factored into your consumer credit score, however the types of credit (mortgages, vehicle financing, etc.) on your report are specific to your borrowing needs and reflect your specific financial circumstances.
When you apply for new credit lenders will review your consumer credit report and use the information to evaluate your credit worthyness. An underwriter or loan officer will consider many factors when evaluating a loan. Including:
- Your credit score
- Your debt to income ratio
- Income history
- Any other information provided
You can easily calculate your debt to income ratio by dividing your monthly net income by the total of your minimum monthly debt payments.
Each credit reporting agency has their own credit score calculation. It is a proprietary formula that outputs your credit score that is purchased by lenders to qualify borrowers. Regardless of your bankruptcy status you can access your consumer credit report authorized by Federal law here: https://www.annualcreditreport.com
Post Bankruptcy
The key benefit of bankruptcy on borrowing is improving your debt to income ratio. By removing bad debt like; high interest credit cards, unwanted medical bills, back taxes, and past due utilities. Your new and improved post-bankruptcy monthly budget should allow for significant savings and positive income to borrow against. In less than three months after filing for bankruptcy, you will be eligible to apply for new credit. A pre-paid credit card is a good place to start because there is very little risk to the lender. You can convert these cards into regular credit cards once you have established a good payment history.
Additionally, if you are interested in buying a home with your new income the current FHA guidelines for post bankruptcy home loans can be found here: https://www.fha.com/fha_article?id=305
Resources
Our Massachusetts bankruptcy lawyers assists each of our clients with analyzing, managing and improving their credit report and score. There are numerous strategies we employ before and after bankruptcy to maximize your credit improvement. Our team has the experience you need to improve your credit score through bankruptcy.
