Vance P. Truman, Attorney at Law
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5 tips to build your credit and buy a home after bankruptcy

You filed bankruptcy right when you wanted to buy your first home. Now you're worried that you'll never get approved for a mortgage and get that dream house -- or even a starter home.

This is a common fear when people consider bankruptcy, but it doesn't need to be. You can still buy a home. You can recover from bankruptcy and it's often no trouble for those who have declared to get the financing that they need.

That doesn't mean you just hope for the best. Below are five tips that can help you build your credit back up after you file.

1. Use secured credit cards.

A secured card starts off with a deposit from you. This lowers the risk for the lender, which can keep the deposit if you fail to pay. However, you can then use it just like a normal card, pay off what you owe monthly, and show lenders that you can handle standard credit cards in the future.

2. Don't miss payments, even small ones.

Maybe you missed payments before bankruptcy not because you didn't have the money, but because you forgot. You paid the phone bill late or paid two car payments one month because you missed the month before. Pay close attention to your scheduling and try not to miss any more going forward.

3. Set up a budget.

You must understand your own spending limits. This is true whether you make $1,000 per month or $10,000 per month. Set up a budget, plan out all of your necessary expenses, and stick to it. People often accidentally accumulate debt simply by spending money they don't have without realizing it. A budget keeps you on track.

4. Keep accounts open, but use them wisely.

You don't have to shut down all of your credit cards and swear off everything but cash payments. Your credit score is stronger if you have loans and credit lines that you're paying on consistently. This may seem risky, but ignoring these options means your score stays lower than it needs to be.

5. Focus on the process.

Everything doesn't snap back into place two weeks after the debt discharge. Be sure you understand the process. As noted above, secured credit can be a bridge back to standard credit. Additionally, loans with high interest rates may help you work back toward lower rates. For example, getting a small car loan with a higher rate and then paying it off on time could help you get a mortgage with a lower rate.

Above all, remember that bankruptcy does not ruin your financial future. You can still have all of the options you've always wanted. Just be sure that you understand your legal options and how best to work toward that future and your first home.

Source: Nov. 30, -0001

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