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Ask Dr. Don

Starting over after bankruptcy

Dear Dr. Don,
I filed bankruptcy last June, 2003. It was discharged in August. I applied for a Capital One credit card and received one. I applied for a cell phone contract from Sprint and received one (was actually offered two), but when I apply for other things, I get turned down. Why is that and what can I do to get my credit back on track after my bankruptcy?
Nikki Noloan

Dear Nikki,
The best way is to lay low for awhile and stop applying for credit all over town. Those applications stay on your credit report for two years. Every time you get turned down, it makes it that much harder for the next lender to approve your application. It's been less than a year since your bankruptcy was discharged. Lenders aren't going to welcome you with open arms.

You've got a credit card. What are you trying to accomplish by getting more credit? To improve your credit history, it's much more important for you to focus on living within your means and staying current on your bills than it is to start building a new house of cards.

Bankrate has partnered with myFICO to offer a FICO Score Estimator that will give you a read on your current credit score. You're in a rebuilding phase when it comes to your credit. Don't be so anxious to rush this process. Stay current on your bills and wait at least until you get past the one-year anniversary of your bankruptcy discharge before you apply for credit again.

Dear Dr. Don,
I am a 62-year-old woman who just went through a three-year bitter divorce. My only income is alimony. My husband decided with the guidance of his attorney to declare bankruptcy and wipe the slate clean. I had no intention of doing the same, but was advised that if I did not, I would be responsible for his debts and haunted for the rest of my life. As a result, I declared bankruptcy.

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Now, I am left with nothing. I need a new car and there is no one who will lend me the money to buy one and I am desperate as to what to do. I thought I was starting over and all would be well with the world and now I am in worse shape than I was before. And the outlook doesn't look better, it looks worse. What can I do?
Georgiann Go-cart

Dear Georgiann:
You got good advice concerning the bankruptcy. Any joint loan obligations taken on during the marriage would have become your responsibility after he declared a Chapter 7 bankruptcy. It will take some time to rebuild your credit, but it won't take the 10 years that the bankruptcy remains on your credit report.

If you have a friend or family member who is willing to co-sign the loan, that could get you past the credit issues arising from the bankruptcy. It's a big obligation on the part of the co-signer because they're agreeing to make the payments if you don't.

Without a co-signer, the longer you can postpone the car purchase, the more distance you put between you and the bankruptcy discharge date. Two years is the rule of thumb, but at least a year would help.

There are plenty of reputable lenders that are willing to loan to people with problem credit. In fact, you should shop for a lender before you shop for a car. Too often car dealers take advantage of people with problem credit by making them pay top dollar for the car as well as an exorbitant interest rate. It's a recipe for financial failure.

Householdauto.com is currently featured on Bankrate's Special Credit Lenders page, but E-Loan and other lenders can also arrange financing for people with problem credit.

Look at buying used or off-lease vehicles to reduce the price of the car and the cost of financing that car purchase. Spend some time on Bankrate's Auto Channel to learn more about buying new or used.

-- Posted: April 16, 2004

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See Also
Divorce and credit
Which is better: Chapter 7 or 13?
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