Rebuilding credit after bankruptcy
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 Dear
Dr. Don,
My husband and I had to file for bankruptcy (Chapter 7) and it was
discharged. However, we are trying to repair our credit and
want to know the best way. We have signed up for automatic
bill pay with our mortgage, a line of credit and our car.
(The only bills remaining.) We are living on one income so
I can get an education and then search for a better paying job.
Is there anything else we should be doing?
I am scared to get a credit card; it is too convenient. However, my
husband and I want to build an addition on to our house in three or
four years and want to be able to finance a portion of that. Is the
above credit, with our past, sufficient? The bankruptcy took place
about a year ago; I should secure a good paying job in about eight
months. We plan to pay off the student loans currently in deferment,
the line of credit, and our car, with my income, and save half of
my income -- about $1,000 a month. We have saved up to buy my husband
a newer car since his is about to go, but we are paying cash, not
financing. I don't want any more debt. Could you guide us in the best
manner to make our dreams come true? The addition should cost about
$40,000 and we are planning to pay cash for at least half; we will
not do it until we have $20,000 in cash and finance $20,000.
-- Melissa Mortgage
 Dear
Melissa,
You're doing all the right things to rebuild your credit after a
Chapter 7 bankruptcy. What's critical is to show a consistent payment
history on your remaining debts. Making payments on time is important,
and automatic bill payments ensure that happens.
I think you should consider getting a secured
credit card to help boost your credit score. You want to make
sure that the card provider will report your payment history to
the credit bureaus, not all secured cards do, and you want a card
that only allows you a line equal to the secured deposit. This Bankrate
feature "10
questions before getting a secured credit card" has more
about secured cards, and Bankrate's credit card search engine includes
a selection of secured
credit cards to compare.
I recommend the secured card to improve the mix of
accounts on your credit report. You're worried about your ability
to control spending with a credit card, and a secured card puts
a limit on that spending. If the idea of a secured card bothers
you, then wait a year or two until you've gotten more comfortable
with living within your means and paying for purchases on a cash
basis.
To the extent that you can pay down the balance on
your outstanding line of credit, it will help you when you go to
finance the addition. Depending on where rates are and your credit
score, you'll choose between a home
equity line, home
equity loan or a cash-out
refinancing
to pay for that addition.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."
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