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Getting ANYTHING and making timely payments on it are good for rebuilding credit. Most people go by way of credit cards because they tend to be a little easier in obtaining. Some of the fees are insanely high, you're right. If she can get a fixed-term loan, that would be fine. I would question how that loan is handled, though. Does she get a lump sum up front? Is it more like a "credit line" where she can use what she needs and then pay that back? What is the APR, maintenance fees (bank fees), late fees, etc, etc, etc.
But, remind her...she's got to pay whatever she gets for ONE FULL YEAR on time before she'll notice a bump in her credit. In fact, in the beginning, her credit will drop a bit because she's opening a new tradeline (this happens to everyone). If she pays it on-time, then the score will start going back up.
One more thing...if she's going to have a monthly payment (that's dependant upon her account balance) then she should NOT be making the minimum payment. Even if she pays it on time, lenders tend to "nix" people for making just the minimum payment. If her minimum payment is $50 and she can pay $100, that looks better than just paying what the minimum is (and it drops her balance faster).
Her loan should also be small enough to pay off within 12 months...or 24 months. While she doesn't necessarily want to pay it off sooner...having a PAID AS AGREED with a positive tradeline history looks great on the credit. If she pays that off in 12 months, and then gets another loan like it and does the same thing...it gives more tradeline/history to help re-establish her credit.
Just remind her to budget, budget, budget and to be aware of what she is spending so as not to fall into the same money trap she did when she had to file bankruptcy.
Unfortunately she is a risk, therefore she will have to pay higher rates due to her profile. It's just something that has to be deal with until she figures everything out. A few things come to mind
1. $200-300 annual fees sound high. Tell her to shop around and do the math. If she makes payments over a year, then she would consider annual fees and interest to be her "price" of rebuilding her credit.
Check out this link of secured credit cards, and an article on secured credit cards.
http://www.bankrate.com/brm/news/cre...edit-cards.asp
http://www.bankrate.com/brm/rate/cc_...ll&max_recs=50
2. There are also credit card companies that target "high risk" card holders. Capital One is the one that comes to my mind. Again, you will be penalized with annual fees, blah, blah, blah.
3. If my memory serves me correct. To build an outstanding credit score, you must show payment history on both a revolving line of credit (credit card) and an installment loan. I would do a google search on building credit, etc.
Well, if it's a fixed amount every month, then she probably won't be able to pay it off sooner. If it's a LOC or credit, where the amount due by the month is based upon how much "loan" she has, then paying more than the minimum is better.Quote:
Originally Posted by Pan Dah
Last time I checked, you did not need revolving and installment loans to get a great score. I know of people who have NO credit cards, but have cars, mortgage, boats, etc and still have excellent credit.
It's not what you have that makes the credit good...it's how well you manage it.
If she just wants the card so she can start building good credit, she can try getting a department store card, like a Macy's card. Just buy one item every month and pay it off. Once she's had this for a year or so she should start getting better offers from other lenders.
Or so I'm told!
I agree with everything said here.
I would also add that I would call around to other local banks and credit unions. Because of the amount of business subprime lending is generating more and more financial institutions are offering it. Let them know about the bankruptcy and ask if she could still be eligable for a secured credit card on what terms. There are all kinds of options out there.
The fact to keep in mind, depending on the chapter of bankruptcy, is that for the next seven to ten years no matter how much work she does on her credit score it will be overshadowed by the bankruptcy. I advice people to actually stay debt free and commit to a budget the first few years after a bankruptcy. Old habits die hard. Getting it into the system of living within one's means is key to staying out of bankruptcy again. Then getting a small loan or credit card to slowly get back into managing debt again. When the bankruptcy falls off the payments on time with the loan and credit card will have more merit.
^ True, the worst thing your friend could do is make a late payment after a bankruptcy. Once you file bankruptcy, you keep your nose clean and your credit can be effectively re-established within a few years (where they won't put as much stock on the bk). But, make 1 late payment during the "rehab" period and she can kiss her credit good-bye until the BK drops off.
Quote:
Originally Posted by VenusGoddess
I slightly disagree that your credit can be re-stablished in a few years after bankruptcy. During the time the bankruptcy is on your credit report it will weigh heavily on your credit worthiness. Even folks with a bankruptcy have a raw credit score. For example a friend of mine filed bankruptcy a few years ago his raw credit score is now 630. But when a lender sees a credit report they then factor in the bankruptcy itself. With some financial institutions that can mean complete denial of services or with others that can just mean a higher interest rate. As long as the bankruptcy shows on a credit report the only lending anyone can qualify for is subprime lending. Which in turn means higher interest rates. In my mind to totally re-establish credit is when the bankruptcy falls off the report.
I got a credit card with Household Bank immediately after my Chapter 7 was discharged. Then shortly after I got a card with Merrick Bank. They both have shitty interest rates but are UNSECURED and have no annual fee. I have a low balance on one of them and don't even use the other. I actually was offered a 90 day interest free time on the Merrick card and charged on it and paid it off in the 90 days and have so far paid them NOTHING in the way of fees or interest depspite the outragously high interest rate.
You can re-establish your credit after you file bankruptcy...you can have good credit and get good rates BEFORE your bankruptcy falls off. IF you keep your nose clean...and yes, in the process you'll have high rates. BK's these days do not make the same impact as they did in the past. Especially for someone who has multiple tradelines and is current and on-time with all of them. If you have positive tradelines for 36+ months, you CAN have re-established credit where they'll see the bankruptcy, but they'll also see your positive money habits, as well.Quote:
Originally Posted by Vamp
The only reason I am addressing this again is because I want to make sure that those who are learning about credit reporting understand.Quote:
Originally Posted by VenusGoddess
I hear it often that bankruptcies do not have the same impact as they did in the past. I disagree.
In the past a bankruptcy or bad credit score would keep you from getting anything thru a loan. Today with bad credit you still have availablity of a loan but at extremely high interest rates. To me bankruptcy on a credit report still has a major impact. Anyone with bankruptcy on their credit report will never been seen as having good credit. Just because you can get a loan does not mean you have a good credit. The terms and interest rate of that loan is differant for good credit vs bad credit. I have never seen anyone with a bankruptcy on their report get a "good" interest rate.
At the same time learning to live within one's means, budgeting, and learning to manage debt with a bankruptcy on your credit report does have it's rewards. It shows up with not having to worry about debt and learning to respect money. The hardest lesson to learn is removing the emotional strings from money. When the bankruptcy falls off then your credit can be restored with what was worked so hard on. Not before.
^^^ I would also add that the new bankruptcy laws indirectly make it much more difficult to rebuild credit after a bankruptcy in a timely manner. Since last October, the vast majority of new bankruptcies are being ejudicated under Chapter 13, resulting in a court mandated payment schedule forcing the bankruptcy filer to keep making small payments to previous creditors over a time period typically extending 5 years past the bankruptcy filing. Thus the bankruptcy filer's post-filing 'disposable' income will be less under Chapter 13 than it was under the old laws (i.e. money allocated to paying previous creditors cannot be cosidered available to pay future creditors). Also the bankruptcy case won't be officially closed until the payment schedule is completed, effectively adding another 5 years to the bankruptcy paper trail.
Bank of America has a secured credit card. I got one a month or two ago.
I also got mine from Bank of America because Wachovia, who I have my checking account with, didn't offer one. I had no credit at all because I was still in highschool. I filled out the application for their regular credit card and they came back with an offer of a secured credit limit of $500 with only $90 being held in a savings account. In bad situations they can give you a $500 limit where you actually give them $500 for the savings account.
Note: You can't pay them over the phone without paying like $15 dollars. It really sucks... have to check about paying online.
-=Phoenix