Obtaining a mortgage after bankruptcy will require debtors to work hard at credit repair. Personal bankruptcy is reflected on credit reports for up to 10 years and can reduce credit scores by as much as 100 points. In most cases it takes debtors 2 years to recover from the financial fallout of bankruptcy.
Qualifying for a mortgage after bankruptcy requires debtors to develop a history of paying bills on time. Consumers who rent their home should submit payments via personal check as opposed to money orders or cash. Doing so allows them to show proof to mortgage lenders that they have paid rent on time.
When tenants do not have a checking account they should request a written receipt from their landlord which includes the date and payment amount. Individuals who plan on obtaining a home mortgage loan should consider leasing property with payments equal to or less than what they can afford to pay when buying a home.
Individuals who are ineligible for checking accounts due to writing bad checks must strive to make restitution as quickly as possible. Most mortgage providers require borrowers to have a checking account before granting loan approval. Banks typically use Chex Systems, Inc. This financial network provides information regarding outstanding checks and unpaid bank fees.
Landing on the Chex Systems blacklist can make it nearly impossible to qualify for a checking or savings account. Debtors who are denied a bank account should request a copy of their Chex Systems report to determine what action is required to be removed from the list.
Debtors should also obtain a current copy of their credit report from each of the three major credit reporting agencies. These include: Trans Union, Equifax, and Experian. Creditors do not always report to all 3 bureaus, so credit reports can vary. Consumers are entitled to one free credit report per year from each agency through AnnualCreditReport.com.
It is imperative to take measures for removal of negative credit. Oftentimes, debts discharged through bankruptcy are not properly reported to credit bureaus. Debtors must follow specific protocol in order to have discharged debts or erroneous credit reporting removed.
Debtors should avoid applying for credit while engaging in credit repair strategies. Each time a person submits a credit application a hard inquiry is applied. Borrowers with excessive hard inquiries are often considered a high credit risk.
Keep in mind that hard inquiries can be reflected when applying for automobile or renter’s insurance or establishing utilities. Employers sometimes conduct credit checks as well. Hard inquiries remain on credit reports for 2 years. Individuals with more than 4 hard inquiries are often denied credit.
Debtors can obtain instructions for disputing credit report errors, along with sample creditor letters through the Federal Trade Commission website. Creditors are required by law to respond to disputes within 30 days. Unfortunately, it can take as long as 9 months before erroneous information is removed, so it is important to obtain credit reports soon after the bankruptcy process is completed.
One option for building credit scores after bankruptcy is to use prepaid credit cards. Debtors deposit funds into their account and use the card for purchases. As borrowers improve their credit they can increase their line of credit and eventually qualify for a bank credit card. It is important for debtors to keep borrowed funds below 40-percent of the credit limit and make payments on time.
Individuals who obtained bankruptcy under Chapter 13 must make every effort to remain in compliance with Chapter 13 payments. Debtors who do not comply will fail out of bankruptcy and eliminate any chance of qualifying for a home mortgage loan for years to come.
Chex Systems, Inc.
Federal Trade Commission