Rebuilding Your Credit After Bankruptcy

 

First use a secured credit card then consider getting a passbook loan from a major bank. A passbook loan is very similar to the secured credit card system.  

You give your money to the bank and then borrow against that money. Of course, the amount you borrow is limited by the amount you deposit but the good news is that this kind of loan is easy to set up as the banks have nothing to lose. 

You can’t access your funds while your loan still has an outstanding balance. If you fail to make your payments on time the bank will seize the funds in your account to protect them from loss. 

There are some positive aspects to this kind of arrangement. First, the interest rate you pay for the loan will be very low as the bank isn’t taking any risk at all. The very best aspect of a passbook loan is that your transactions are all dutifully reported to the three major credit reporting agencies – and that helps you build (or rebuild) your credit very quickly.

These loans usually last from one to three years but you should be aware that not all banks will bother with this kind of deal so you might have to shop around to find a bank that’s currently offering passbook loans. 

Of course it goes without saying that you should make all payments on time or before they’re due but there’s another potential problem that you might be aware of.  

Do not pay off the loan ahead of schedule. If you do there’s a chance that you won’t get the positive entries in your credit file that you need. Let the process unfold as scheduled and be patient. 

Make a few payments right on schedule and you’re on your way to establishing yourself as a good credit risk.  

Be sure you understand the following before you sign: 

What exactly is the interest rate? 

What percentage of my savings account balance can I borrow? 

Will this loan and it’s payments be reported to the major credit reporting agencies? (Be sure to ask this question as some banks don’t report passbook loans at all.) 

Are there any prepayment penalties if I have to pay off the balance prematurely? If there is a prepayment penalty, what exactly is it? (It should be a nominal sum. If it appears too large, move on to another lender.)