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 Dear
Bankruptcy Adviser,
I had a stroke in March 1998, after having worked as an RN for more
than 30 years. I was unable to work and was forced to declare bankruptcy.
What can I do now to improve my credit rating? I have utility and
credit card accounts, which are all in good standing. The rent for
my apartment has always been paid on time.
-- Susan
 Dear
Susan,
I can tell that you have the ability to restore your credit. Unfortunately,
your utility and rent payment history does not appear on your credit
report. From a bank's perspective, all that matters is your record
of bankruptcy.
Step one: Take a deep breath. Then, call every bank in the phone
book and ask for a line of credit (aka, a credit card). There's
no need to include the banks included in your bankruptcy petition,
but call every other bank, or use Bankrate's free credit
card search until you have one of the three products below:
- An unsecured credit card. This should be your first choice.
It is a regular credit card, so you don't have to deposit any
money in order to get it.
- A secured credit card. This is a card backed by a deposit you
have to make, with a credit limit that is tied to the amount of
your deposit. An example would be if you put $500 into an account
and received a line of credit for $500. Watch out, though. Some
issuers of these cards prey on people desperate for credit, charging
extremely high fees that eat up some or all of your available
credit.
- A "passport loan." A passport loan is similar to a
secured credit card loan in that you must deposit before you borrow,
but there's no plastic card involved. You borrow your own money
back -- and pay interest on it. So if you deposit $500 and receive
a $500 passport loan, you will immediately be paying interest
on a balance of $500. The key is to simply pay off the loan, with
interest, until the loan is paid back in full. Then apply for
an unsecured or secured credit card.
The ULTimate plan
From here, re-establishing your credit is all about Use, Limit and
Time -- ULT. Call it the ULTimate post-bankruptcy credit restoration
plan.
Step two: USE the card
each month and pay it off in full. In the case of the passport loan,
just pay it off.
Step three: Every six
months, call your bank and apply for a credit LIMIT raise.
Step four: Let TIME
pass. A few months after your first limit increase is approved,
apply for another card with a home-improvement store or other major
retailer.
Taking any kind of a loan and paying it back consistently over
time will improve your credit. If you finance the purchase of a
car or a home, that's also very good for your credit -- assuming
you can afford the down payment and future mortgage payments.
Finally, I strongly suggest that you use your bank's direct debit
and online banking features. It's crucially important to never be
late on a payment when you're re-establishing your credit.
Justin Harelik is a practicing bankruptcy lawyer
in the Los Angeles office of Price Law Group. To ask a question
of the Bankruptcy Adviser go to the "Ask
the Experts" page, and select "bankruptcy" as
the topic.
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