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Bankruptcy can taint your credit report for up to 10 years, but you can boost your score much sooner.
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Boost your credit score after bankruptcy

Filing for bankruptcy is not a decision most people take lightly, especially because it affects access to new credit, home loans and even employment opportunities, not to mention the emotional impact filing for bankruptcy can have.

Nevertheless, more than 1 million consumers filed for bankruptcy during the 12-month period ending Sept. 30, 2008, according to federal court statistics released in December. This compares to 775,344 filings over the same period the year before.

Bankruptcies can remain on your credit report for up to 10 years and can decimate your credit score by hundreds of points. But by adopting these strategies, you could boost your credit score and become creditworthy several years before the bankruptcy drops off your credit report.

7 steps to a higher credit score
Mix it up with multiple credit lines
Having more than one type of credit line will help boost your credit score.

"You want to have a nice mix of revolving charges and installment charges," says Dee E. Hoffman, executive director of the National Credit Restoration Alliance in Conroe, Texas.

"The point is most people with great credit scores probably have two credit cards from well-known, well-respected banks, a house payment, maybe a boat payment, and they keep those balances below 15 percent (of available credit) every month."

About 10 percent of your credit score is calculated based on the types of credit you use (i.e., credit cards, mortgages, installment loans and retail accounts), according to MyFICO.com.

Another 10 percent is based on new credit accounts -- which can include credit lines established following your bankruptcy. However, exercise caution when opening too many new accounts at once because you could potentially lower your credit score by lowering the average age of your credit accounts. This is especially true for consumers who went into bankruptcy with already thin credit files.

Post-bankruptcy consumers may want to avoid retail accounts because they usually have low credit limits and can get the cardholder into high utilization ratios very quickly, according to Hoffman.

"Unless that's the only card you can get, I would advise not getting it unless you can go in there and charge a cheap item and pay it off each month," he says.

Stephen Snyder, credit expert and author of "Credit After Bankruptcy," believes retail cards may be useful.

"I've always pooh-poohed retail credit because it's a small part of the credit mix and the interest rates are high, but it's important to have the right mix for your scores," says Snyder. "I'm low key on retail, but it's still important to getting back your credit score."

Once your financial house is in order and your credit score goes up, you could qualify for an FHA loan. Generally, it takes about two years after a bankruptcy discharge to qualify for an FHA loan.

"It's a great time to mortgage a home because FHA limits are the highest they've ever been and government is certainly the way to go for a more recent (bankruptcy) filer," Snyder says.

Although the FHA program does not officially use credit scores to qualify a loan, individual lenders may.

"Most of the lenders now require at least a 580 score to get an FHA mortgage and some go down as far as 550," he says.


-- Posted: Feb. 18, 2009
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