Bankruptcy

Choosing a Lender to Rebuild Credit

By meaghano

If you?re trying to build or rebuild your credit after bankruptcy, you probably know that using credit responsibly is your primary goal.

Here?s how to set yourself up for success in borrowing.

Choose Affordable Payments: Before signing loan papers or credit card agreements, you?ll need to do a four-part math problem:

1. Check your budget. Determine exactly how much money you have left over each month (no generalizing!).
2. Calculate monthly payments for your loan. Again, make sure you know exactly what you can expect from the life of your loan ? no assuming, no generalizing.
3. Compare the two numbers. If your leftover money is less than the monthly payments, you cannot afford the loan. Assuming you?ll get a raise or a bonus is dangerous, especially in this economy.
4. Leave a cushion. Remember: part of financial stability is saving money for unexpected emergencies, so if you?d have to spend all your income to cover the loan, you can?t afford it.

Beware of Hidden Costs: Make sure you read the entirety of a loan or credit card agreement before signing it.

If you?re not comfortable interpreting legalese, enlist the help of a bankruptcy attorney. Be on the lookout for the following.

• Fees & costs associated with the account. Yearly charges, overdraft charges, late charges, early payment charges and others add up quickly and can cost more than you realize.
• Fluctuating interest rates. Credit card issuers are infamous for advertising low interest rates, but not the fact that many such rates last for only a short period. Make sure you understand what events could lead to your paying more in interest (missed payments, going over your limit, etc.).

Avoid Common Predatory Practices: Unfortunately, some lenders will count on your ignorance about lending practices to trick you into paying more than you should.

Watch out for common schemes like the bait and switch, equity stripping, loan packing and loan flipping.

Bottom Line: There?s No Rush

Many people are eager to reestablish credit after a bankruptcy filing, but don?t let this drive to improve your finances lead to poor borrowing decisions.

Right after filing bankruptcy, you can expect to pay a bit more in interest rates and to qualify for lower loan amounts.

But, if the offers you receive seem too expensive, wait a while.

With a year or so of strong credit practices under your belt, you should be able to get more affordable loans ? and improve your chances of improving your credit and staying debt-free.

Full post as published by The Bankruptcy Blog on July 07, 2009 (boomark / email).