debt

Bankruptcy timeline: Rebuilding credit

"There are many unscrupulous agencies out there that will claim they can remove a bankruptcy or fix a credit report," says Samah Haggag, manager of analytics for Experian. "There is nothing a credit repair organization can do that you cannot do yourself."

The 2005 Experian National Score Index study has shown that the national average credit score for a consumer with a bankruptcy in their credit report is 604, about 70 points below the average score for consumers without a bankruptcy. Currently, the Experian National Score Index has calculated the average credit score for consumers without a bankruptcy at 677, but the number is updated on a monthly basis.

Experts say the degree of improvement in a score will vary. Barry Paperno, manager of consumer operations at Fair Isaac Corp., explains that this will depend on "what the consumer's score was prior to the bankruptcy filing as well as to what degree the bankruptcy affected the consumer's score, how much new debt has been established and the time elapsed since the bankruptcy discharge."

Credit cards

One way to start improving your credit is to open a secured credit card account right after you are discharged from a bankruptcy. Simply head to a bank, fill out an application and make a deposit into a secured account. The bank, in turn, provides a credit card with a credit line that's 50 percent to 100 percent of the deposit. The Federal Trade Commission says that the bank will usually pay interest on your deposit.

Ben Woolsey, spokesman for Creditcards.com, warns consumers that they can expect to pay an annual fee for a secured credit card. And the annual percentage rates for secured credit cards may range from 15 percent to 23 percent, rates that are higher than most unsecured cards.

Be prepared to pay application and processing fees, and check to see whether you will get a refund if you're denied the card. Compare the total fees required before signing anything.

Also, confirm that the bank reports your credit card limit to the major credit card bureaus, offers periodic credit increases and doesn't report the card as secured.

Orchard Bank, for example, offers secured credit cards with a minimum deposit of $200 and a maximum of $15,000 to a person that's of legal age, has a telephone in their home and is a U.S. resident with a valid Social Security number. The company will recommend a specific MasterCard that fits the consumers' needs and credit profile, and the credit limit is equal to 100 percent of the deposit.

Bankrupt consumers can use Bankrate's credit card search to find other providers of secured credit cards.

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"Once a person has established a regular pattern of making their payments on time, the issuer of the secured credit card will normally increase the credit limit to comparable levels with a regular, nonsecured card," says Woolsey.

Woolsey adds if the bankrupt consumer maintains a positive credit history he or she could qualify for an unsecured credit card within one to two years.

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