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Rebounding from Bankruptcy or Foreclosure

Most people would agree that the presence of a bankruptcy or foreclosure on your credit file can have a serious negative effect. Where do you go and what do you do once the damage has been done? There is so much misleading information available about credit and credit scores on the Internet, from coworkers, from collection agencies and brokers… it can be hard to know where to start. Here are 4 credit truths to live by:

#1 – It’s really not as bad as you think.
You may think that you are ruined forever: you may have been told your credit is shot until 7 or 10 years has passed before you can buy or own anything again. The good news is that this is absolutely false! Negative information only affects 35% of your credit score; if you know how to re-establish yourself, you can boost your scores up by taking advantage of the remaining 65% still up for grabs.

Many people lose so many points off of their scores after bankruptcy or foreclosure because they don’t know how to minimize the damage. After filing for bankruptcy or going through foreclosure, you may find that many accounts will still report balances, contain false information, continue to report delinquencies or misrepresent the type or status of the account. By correcting or removing these things appropriately and leveraging the other areas of your score: building the right types of credit, using your accounts the right way, etc., you can easily rebound.

#2 – It will take some time.
Re-establishing yourself can be tough, especially if you’re not sure where to start. With the right help, many people can get turned around and back on the right track within 60 days. If you try to do things on your own, it can take a lot more time with a lot of trial-and-error. Within months your scores can be back where they were before or even higher.

The more time you let pass by with your current situation is more money you’re going to waste on outrageous interest, fees, and insurance rates. A recent Credit Empowerment study showed that with a 580 FICO score, the same average American paid well over $8,000 more each year on interest and insurance payments alone than if he/she had a 680 FICO credit score. It’s important to get moving on things now so when you decide to make a major purchase you’ll be ready to go.

#3 – Lenders don’t all play by the same game plan.
Each bank or lender uses different procedures and methods of collecting and reporting information, approving applications, and working with post-bankruptcy clients. If you’re looking for consistency, you won’t find it here.

Some lenders will be willing to quickly lend to you just weeks or months after bankruptcy or foreclosure. Others will try and take advantage of your situation and charge you incredible fees to help re-establish your credit. Developing the right relationships with the right lenders is a key piece to improving your scores and regaining your financial freedom.

#4 – Traditional credit repair cannot help you.
You’ve certainly read or heard that credit repair can’t help you. This is true, but for different reasons than what you’ve been told. Credit repair tries to focus on removing negatives, not improving your credit scores.

Let’s begin with “Credit Scoring 101″. The information collected by the credit bureaus is translated into a number to determine your performance against other people. This process does not operate according to what we’d consider common sense, but rather is a complex combination of algorithms and mathematical equations derived to determine your risk. That means removing negative information doesn’t, by any means, guarantee a score increase — in fact, it can even damage your scores. Most major credit scoring models use a “multiple scorecard” format where it groups people with similar information together and ranks their performance against that of their peers. When a bankruptcy or foreclosure appears, it truly alters the fabric of your credit file, shifting you onto a very different ’scorecard’. In other words, the weight of factors and how accounts are considered usually changes considerably with the presence of serious derogatory marks on your file. Because of this process, you could have a bankruptcy on your credit file and be well above a 700 FICO score, or have no negative information at all and come up with a sub-600 FICO score. Believe it or not, you now know more than most credit repair companies.

What Steps Do I Need to Take?

First and foremost, to successfully rebound from bankruptcy or foreclosure, you must change your perceptions about credit and how it is used. Most people fall into bankruptcy or foreclosure because of life circumstances: job loss, medical problems, divorce, etc. This time around you cannot overextend yourself — our society needs to realign how we perceive and use credit as a safety net and start living within our means. Credit is an asset and a tool that you can utilize to leverage the best terms for any sort of credit-related arrangement. Make sure you’re on a budget and saving at least a small portion of your income.

CMAC can help with each of these steps and get you to quickly rebound after bankruptcy. We’re all caught up playing this ‘credit game’ but no one really knows the rules. Let us set some boundaries and work to score the points you need.

The experts at Credit Empowerment ’s personal services division, CMAC, have been serving people just like you since 2001. As credit score professionals, we not only help you to clean up what’s out there, but also ensure you understand all of the factors going into your credit scores. In the first 6 weeks of our CMAC Express program, over 85% of our clients see at least 45 points or more on each of their credit scores. Let us minimize the damage and help you navigate your way back into a great credit standing.

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