Frequently Asked Questions About Credit Ratings / Backruptcy Alternatives / Debtor's Options
If I choose any option other than pay creditors in full won't my credit be ruined forever?
Not forever, but a bankruptcy stays on your credit record for ten years. On personal financial statements you may always have to acknowledge it.
Shouldn't this be a major consideration?
The effect of a bankruptcy on your credit rating must be judged based on your present rating. One way to find out your current rating is with our Free Online Credit Report.
I have no clue what my present rating is, how do I find out?
Once you understand how banks view credit reports you will probably have a good idea of how yours looks. Before making a final decision on your financial direction you should obtain a true copy from one of the three major reporting companies. Again, you can access this information via our Free Online Credit Report.
How do banks view credit reports?
To get most major credit cards, or a mortage loan at the lowest rate you'll need a flawless report or just some minor glitches with good explanations.
At what point does a late payment become a black mark on my report?
At 30 days late; many clients become nervous their credit has already been ruined at 15 or 20 days late. Even though you may be assessed a late charge for a 20 day late payment it most likely will not show up on the credit report.
So once I've passed 30 days late the damage has been done?
There could be a chance that a particular creditor does not provide information to the credit reporting agencies, otherwise your slide has started.
Other than those who do not report, each piece of credit I have should be on the report?
Probably, but commercial loans should be an expection.
Can it get worse?
Sure, once you go over 60 days late that will be noted. Again at 90 days and 120 days, sometimes 150 days; each brings a new black mark.
What happens after 150 days?
By this time an account will shift to the creditor's collection department, which may also be noted on a credit report. Eventually if the debt goes uncollected the creditor "charges it off" - the blackest of black marks for a single consumer debt item.
Does a charge off mean they have forgiven the debt?
Not at all, you still owe it and they may still try to collect it. Charging off a debt just means they have written it off for accounting purposes.
What if I think I still have flawless credit?
Trying to keep it that way will rank very high on the priority list, and should be watched very carefully.
What if I already have many charge offs.
Keeping good credit has already become a dead issue.
No matter how bad it is now, won't a bankruptcy make it much worse?
Not in the short run. A debtor with many unpaid charge offs is just as unbankable as one with a bankruptcy.
What about in the long run?
Bankruptcy stays on your credit report for ten years. Most consumer debt drops off the report after seven.
Is there any advantage to bankruptcy on a credit report?
Surprisingly there can be. Some banks prefer to see an old bankruptcy rather than old unpaid charge offs.
Why might that be better?
An old unpaid charge off means you still owe the money and creditors may force you to pay them rather than the new creditor considering your request. An unpaid charge off also indicates an unwillingness to deal with your debt. As bad as a bankruptcy can be, it shows you have dealt with the debt. Also, you might still file for bankruptcy with an unpaid charge off. Once you file a chapter 7 you can't do it again for 6 years.
Once my credit has gone sour can it be made better?
Better yes, but the scars may still be there.
How can I make it better?
If you do not file a bankruptcy, deal with your unpaid items by paying them off or working them out. In any case start building new credit and be careful to keep up timely payments on it.
How do you build new credit when no one will give you a loan?
Start with charge accounts at stores or service stations. Many people get secured credit cards.
Will I be able to buy a car?
Vehicle loans may be obtained by putting a large percentage of the price down as cash up front. Expect to shop several banks or dealers to find someone willing to loan money to someone with bad credit, but it can be done.
Can I buy a house?
Probably, but the level of your credit will determine who you should look to for a mortgage.
What choices will I have?
It will depend on how bad your credit has become. With good credit or minor flaws the lowest rates, smallest down payments and most prevalent today are what I call secondary market loans.
What is a secondary market loan?
These loans may be made by a mortgage company or a local bank. Soon after the loan closes it sells to an investor in the "secondary market", most times these loans end up guaranteed by a governmental agency like Fannie Mae or Freddie Mac. To qualify for these loans you need good credit.
What if I have black marks on my credit?
Some local banks make mortgages they keep "in-house", this means they will not be sold in the secondary market. These loans may carry higher rates and larger down payment requirements but you will always deal with your local banker who might be willing to take a more lienient approach to your credit history. Be sure to ask if the bank keeps their loans "in house" when calling for information.
What if all banks turn me down.
There should be mortgage brokers in your area specializing in making loans to people with bad credit. Expect these rates to be quite high and down payments needed up to 50%, but even those with bankruptcies and the nastiest credit will be eligable. I have prepared a directory of these lenders on a page called Alternative Mortgage Sources USA.
In summary, the best way to address your current Credit situation is by applying for your Free Online Credit Report so you know exactly where you stand financially.