Done right, post-bankruptcy score can be a good one

This post originally appeared March 5, 2015 on CreditCards.com as “Boosting credit after a discharged bankruptcy

By Barry Paperno

Dear Speaking of Credit,
I filed for bankruptcy in July 2011, and it was discharged in September 2011. My current credit score is 690. Currently on my credit report: 1st/2nd mortgages, a car note, one credit card with a limit of $750. I am looking at refinancing my 1st/2nd mortgage loans into one loan at a lower interest rate. The lender declined, as they said the magic year is four years after a bankruptcy to get approved. They also mentioned that I should try to raise my credit score to 700 to get an even better rate.

My questions for you: 1. Which dates are reported to my creditors — the discharge date or filing date? My credit report reflects my credit cards showing a date of October 2010 and my mortgage company shows July 2011 (which may be to my advantage because the discharge date is actually September 2011). 2. What can I do to bring my credit score up to 700 in six months? All payments are timely and I keep my credit card below half of the available credit. 3. Would you suggest getting another credit card to help me or hold off? Thanks in advance. — Cate

Dear Cate,
I’ll sort out these bankruptcy-related dates — filing and discharge — for you in terms of how they’re used in the reporting of your credit history, which dates are reported to your creditors, how this information impacts your credit scores and the date used to determine when you can be considered for the refinancing of those mortgage loans.

Your bankruptcy filing date (July 2011) is the date the official paperwork was filed that opened your case in bankruptcy court, while the bankruptcy discharge date (September 2011) is the date you were released from personal liability for debts included in the bankruptcy.

Upon filing, the public record information pertaining to the bankruptcy, such as the filing date, status, type of bankruptcy, case number and bankruptcy court information, is added to your credit file and made available to all of your creditors, whether included in the bankruptcy or not. Many creditors subscribe to a service in which the credit bureaus notify the creditor when one of their customers files for bankruptcy, even if that customer doesn’t owe anything to that creditor and doesn’t include their account in the bankruptcy.

Generally, the filing date is used in credit reporting and scoring, and the discharge date is used as the starting point for the required waiting period for a new mortgage, with the length of time depending on whether it’s a Chapter 7 or 13 bankruptcy, and whether the loan is conventional, FHA, VA or USDA.

The filing date is used in credit reporting to help determine the length of time a bankruptcy public record item remains on the credit report: 10 years for a Chapter 7 and, typically, seven years for a completed Chapter 13. Different retention rules apply for the credit accounts trade lines included in the bankruptcy, as they are removed after seven years.

For credit scoring purposes, the filing date provides the starting date for calculations measuring the length of time since a bankruptcy occurred, which is a strong scoring component of the payment history-related scoring factors that together make up 35 percent of your score.

The four-year waiting period following a Chapter 7 bankruptcy is measured from the discharge date, as is the two-year waiting period following a Chapter 13.

What this all points to is that you should be considered for a mortgage beginning in July 2016, your credit cards included in the bankruptcy should fall off of your credit report around October 2017 and your Chapter 7 bankruptcy public record item should be removed from your credit report in July 2021.

I’m confident that getting to 700 from 690 in six months should be a slam dunk for you, as long as you don’t miss any payments or run up any new debt during that time. While your score is likely to achieve that goal of 700 within the next few months simply by continuing to manage your post-bankruptcy credit as you’ve been doing, I’m going to suggest accelerating the process by obtaining another credit card or two for the dual purpose of increasing your available credit, which should help lower your utilization, and adding some positive credit to your credit report to help offset or dilute some of that negative credit history related to your bankruptcy.

These additional cards can take the form of either a secured card in your name, or the existing card of a spouse, significant other, family member or very trusted friend, provided they are willing to add you as an authorized user and the account is in good standing. Both cards have the potential to exert the kind of positive influence on your score that could easily have you seeing 700 and higher within the next few months and have you well on your way to that lower-rate refi a year from this coming July.

Have a question or comment?  Let’s hear it!

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