An elderly bankruptcy client called me today and asked, “How do I improve my credit score after bankruptcy?”
The question involved renting an apartment in the future. My client was told by the landlord that their credit score was too low, and that they should wait until their score improves, then apply again.
This client was preparing to find more affordable housing over the next 3 months in a 55 and older complex. The advantage to my client was paying lower rent, which would help him due to the fact that his only income was derived from social security.
After being told by the landlord that he wouldn’t qualify, my client immediately contacted me asking how does he can improve his credit score.
His credit score was in the mid 500’s. He just received his discharge order from the Court. He wanted to know what should he should do.
I told him that by filing bankruptcy, his credit would certainly improve over time. But there are proactive things that he can do right now to help him improve his credit score after bankruptcy, and subsequently secure new housing in the next several months.
First, I told him to obtain a secured credit card from a local credit union. That is a good way to begin improving your credit score after bankruptcy. You see, credit unions offer that option to obtain new members to their union and they have nothing to lose.
The process involves opening an account with a certain deposit in the amount of $500 to $1,000. These funds are used as security in the event that a card holder doesn’t make their monthly secured credit card payments and ultimately default on the secured card. There’s no risk to the credit union.
Usually, over the course of about 1 year, the credit union will review payment history, and if it’s excellent, credit unions may find you as a good risk to issue a regular credit card.
Second, and this is something that I discussed in a previous video, he wanted to offer the landlord 6 months of rent to sweeten the deal.
I told him that landlords, when offered multiple months of rent in advance, may take that offer as a red flag, thinking that when the multiple months of pre-paid rent are depleted, that this tenant may default on the remaining rent due.
A better solution would be to offer 3 or 4 months of additional security deposit. That way, if this client gets into financial trouble again, the landlord would not get burned because the security deposit should be enough to cover any loss of rent.
Providing additional security deposit funds is similar to the credit union solution I just mentioned.
The benefit of holding funds as security for extending credit is the same as holding extra security deposit to prevent losing future rent.
The third solution to improve a credit score is as follows:
All of my bankruptcy clients find that they receive multiple offers from regular credit card companies to apply for a credit card.
That’s dangerous because applying for credit cards after receiving offers can actually damage your credit in the eyes of the credit reporting bureaus.
Resist that urge. Slow down, get a secured credit card, get accustomed to making timely monthly payments, then take the next step up.
Like the saying goes, good things come to those who wait.
