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5 Tips for Rebuilding Your Credit After Bankruptcy
In 2012, the American Bankruptcy Institute reports that Americans filed 1,181,016 non-business bankruptcies. Even though bankruptcies have dropped significantly from the previous three years, many American families and individuals are still taking some serious financial hits.
If you’re among the millions of Americans who have recently filed for bankruptcy, it’s never too early to start thinking about rebuilding your credit. And even though a bankruptcy filing will stay on your credit report for up to ten years, there’s much you can do in the meantime to begin building your credit score back up.
Here are five ways to begin:
1. Look at the underlying causes
Unfortunately, one study from St. John’s University found that about 16% of US bankruptcy filings were repeat filings, and about 8% of bankruptcies were filed by those who had already filed one or more times. That means that nearly one in ten people fail to fix the underlying causes of their financial issues, so they stay on the merry-go-round of bankruptcy for another ride.
Before you do anything else to rebuild your credit, then, look at the underlying cause of your bankruptcy. Did you speculate too much on a business venture by taking on personal debt? Did you make one or two big-ticket purchases? Or were you simply living consistently beyond your means? Maybe you were just slightly overextending yourself in debt, and you lost a job, even.
Take an honest look at the reason or reasons that you had to file for bankruptcy, so that you can take steps to fix these issues in the future.
2. Order your credit reports
Next, order credit reports from all three credit reporting bureaus – Equifax, Experian, and TransUnion. You’re entitled to one free report per bureau per year, but it’s worth your while to pay for reports if you must. You might also want to check your actual credit score (different from your credit report!), which usually costs around $5 extra per bureau.
First, be sure that your credit reports include accurate information, both personal information like your name and address and financial information about your bankruptcy proceedings. Then, check the damage that your bankruptcy did to your credit score. Once you know where you’re starting from, you can dive in to improve your credit score.
3. Pay your bills on time
The single most important piece of your credit score is how you pay your bills on time. Missing payments – which most people do before they file for bankruptcy – can cause serious damage to your report. Making payments on time, on the other hand, slowly but surely builds your credit back up.
Do what you have to do to pay your bills on time. That may mean automating payments so you don’t forget, making extra payments once a month so you’re a bit ahead of the game, or even getting a part-time job to ensure you don’t run out of money before your bills are all paid. A careful personal or household budget can also help you ensure you have enough money to go around, so that all your bills are paid on time.
4. Start an emergency fund
One reason that many people end up in bankruptcy is that they’re always scrambling from one emergency to the next. So before you start taking out new credit, build up a small emergency fund. Just $1,000 is a good start, as this could be enough to fix a car or washing machine in a pinch.
Having an emergency fund keeps you from going into more debt when emergencies to arise – which they most certainly will! Just be sure that you only touch this fund in a true emergency. Keep it somewhere that’s hard to access – like a savings account not linked to a checking account – to reduce temptation to spend emergency funds on everyday items.
5. Apply for new credit, slowly and steadily
Finally, know that you build credit by wisely using credit. Wise is a key word there! If you go and rack up hundreds or thousands in credit card debt very quickly, your credit score won’t improve. It might even drop, as you’ll look even riskier to lenders.
Car loans and other secured loans can be the easiest option to get, but make sure you aren’t going to get fleeced with super-high rates. Otherwise, try taking out a secured credit card. This kind of card is easier to get with a low credit score because you pay a deposit before you can use the card. This ensures that the lender will get some money back if you default on your payments, making you more likely to get credit.
Taking these five steps will put you on the right path to recovering your credit after bankruptcy. Just be sure you learn to manage your money wisely, and you’ll go far in the future.
–Abby Hayes is a freelance personal finance writer and contributor for personal finance blog Dough Roller. She spends her spare time bargain hunting for her family of three.
June 19, 2013 at 12:54 pm, by admin | No Comments | Category General
5 Ways to Teach Kids Financial Responsibility
Talking to kids about money can be difficult, and teaching them first-hand about money matters is even more so. But many of today’s adults are struggling to manage money properly, and that’s not a problem we want to pass on to the next generation.
Luckily, there are plenty of hands on ways to teach your kids financial responsibility. Here are five ideas to get you started:
1. Pay for hard work
Most parents think it’s good for kids to do some household chores without getting anything in return, and they’re right. You don’t get paid to cook dinner or do the laundry, and kids should learn that some chores are just part of growing up.
But on the other hand, you can teach your kids that hard work means big bucks by paying them on commission. Let them know that certain above-and-beyond chores will be paid at a flat rate. (ie. $5 for raking the leaves or washing the car) As long as they actually do the job well, pay them.
Incentives like this tell kids that work is worthwhile, a lesson that will carry them well into adulthood. Plus, it’s hard to teach kids to manage money well when they have absolutely no money to manage!
2. Set up a saving system
It’s okay to compel your kids to save a certain amount of money. Once you get the habit into place now, they’ll likely start doing it automatically when they’re older. On the other hand, if you let them blow all the money they earn, they’ll get into the habit of blowing through their cash quickly.
Many families have a “spend, save, give” system, so kids learn to spend wisely, save a lot, and give generously. Have kids put a certain percentage into saving and giving, and then leave the rest available for “fun money.”
While you’re at it, give kids a visual as to how much they’re saving. Quicken Kids is a good option, especially if you’re already using Quicken for family or business finances. But you could also just create a graph to show how much a younger child has in her piggy bank as incentive to keep saving more.
3. Create a matching goal
One excellent way to motivate good habits is to set up a <a href=http://www.doughroller.net/retirement-planning/dave-ramseys-step-4-a-visual-guide-to-saving-15-for-retirement-in-a-roth-401k/>matching savings goal</a> with your child. For instance, most teens are keen on having a set of wheels the minute they turn sixteen. So tell your teenager that you’ll match a certain percentage of whatever they save for a car.
This is great for two reasons: it keeps your teenager (or yourself) from going into debt for a car, and it motivates him to work hard and save more. You could also use this motivating technique to help a younger child save for a “big” purchase like a video game or new toy.
4. Let them plan for the family
A major issue for kids when it comes to financial literacy is understanding just how much things cost in “the real world.” The 10-year-old begging for a new toy or the teenager asking for a back-to-school shopping spree probably has no idea how much it costs to feed your family or keep a roof over your head.
While you definitely want to avoid putting your family’s financial problems on the shoulders of your kids, teaching them about real life spending is smart.
One option here is to give kids a budget for a family meal. Help them plan, grocery shop (or send them out alone, if they’re old enough), and prepare a meal for the whole family. (Clearly, this helps build a whole set of important life skills, as well!) Another option is to give kids a budget for back-to-school shopping, and then let them make their own choices.
Either way, helping kids get in touch with the actual costs of living and providing for a family is an essential way to prepare them for adulthood and all its financial decisions.
5. Allow them to make mistakes
Making mistakes is just part of growing up, whether we’re talking about learning to ride a bike or learning to manage finances. Sure, you don’t want to let your 16-year-old take on high debt to buy a beater of a car, but letting that same kid blow her allowance on a purse is a life lesson in the making.
As a parent (or with your partner!), it’s important to figure out where you’ll draw the line. Is a $100 mistake too large? Or would you let your kid make a $200 mistake? It all depends on you, your parenting style, and the age of your child.
But the fact of the matter is that letting kids make financial decisions they’ll later regret is one of the best ways to teach them about proper money management.
–Abby Hayes is a freelance personal finance writer and contributor for personal finance blog Dough Roller. She spends her spare time bargain hunting for her family of three.
May 30, 2013 at 8:48 am, by admin | No Comments | Category General
Why Correcting Errors on Your Credit Report is Essential
Fixing an error on your credit report can be time consuming, and not a little frustrating. But with a recent FTC study showing that 26% of consumers could have potentially problematic errors on their credit reports, checking for and reporting errors is more important than ever.
Why Are Credit Report Errors So Common?
While 26% of consumers in the FTC study did, indeed, have “potentially material” errors on their credit reports, mistakes only really affected the credit scores of about 5% of study participants. Still, though, 5% is a pretty large margin of error, especially when it comes to something as important as a credit report.
One of the main reasons that credit reporting errors are common is pure information overload. Just picture the amount of information your average credit reporting bureau has to keep track of – tons of financial information on millions of consumers! It’s really a lot.
When you’re dealing with that much information, simply keeping it all straight requires some pretty sophisticated engineering. And while the major credit reporting bureaus do have sophisticated information systems in place, that doesn’t mean everything is perfect.
Plus, it’s so easy for credit information to be misreported because someone else has a similar name to your own. A single letter added to your last name, an incorrect middle initial, or a transposed digit in a Social Security number can make a huge difference.
Then there’s the issue of identity theft. If someone opens an account in your name, it’ll wind up on your credit report. But that’s not the fault of the credit reporting bureaus, and they won’t know that the account is fraudulent unless you alert them.
The major credit reporting bureaus have been accused of being cavalier with the personal credit information of the average consumer – and maybe they sometimes are – but the reality is that in an imperfect system dealing with tons of information, mistakes are just bound to happen.
Why Should You Care?
Since only 2-5% of cases in the FTC study showed credit reporting errors that would actually impact a person’s ability to get credit, why should you even care? More than likely, after all, there aren’t mistakes on your credit report that will really hurt you in the long run.
Well, sure, you’re most likely not going to see material harm to your credit score because of misinformation on your credit report, but that doesn’t mean that it couldn’t happen. If you have otherwise excellent credit but have one creditor mistakenly report a late payment, your credit score could quickly tank – leaving you scrambling the next time you need to apply for credit.
Also, even minor errors that don’t leave your credit score in the ditch can cause problems when it comes to getting credit. If your name or address isn’t listed properly on your credit report, for instance, you may be subject to more creditor scrutiny when you apply for credit. (Or even when you apply for a new job or an apartment, since a form of your credit report may be used during both of those processes!)
Finally, you should keep a careful eye on your credit report because so-called mistakes on your report may actually signal that you’re the victim of identity theft. Sometimes accounts are simply misreported because a creditor or credit reporting bureau makes a mistake.
But many times, an unfamiliar account on your credit report indicates that your personal information has been used to open up a fraudulent credit account. And not catching this type of theft right away can really come back to bite you in the long run!
How to Fix Errors on Your Credit Report
Fixing errors on your credit report can take time, but it’s not all that complicated of a process.
The first step is to find the errors, of course. You can do this by pulling a copy of your credit report. You’re entitled to one free copy per year from each of the three credit reporting bureaus – Equifax, Experian, and TransUnion. It’s a good idea to pull a copy from each bureau, since each file may have different mistakes in it.
Next, if you find mistakes, you’ll want to fill out the online dispute form for the respective credit reporting bureau. If the error is actually with the creditor who reported the account, you may also need to write a letter to the creditor.
Maintaining your good credit is essential to a healthy financial future. And part of this maintenance is frequently checking your credit report to ensure you catch and correct any errors as soon as possible.
–Abby Hayes is a freelance personal finance writer and contributor for personal finance blog Dough Roller. She spends her spare time bargain hunting for her family of three.
May 23, 2013 at 9:15 am, by admin | No Comments | Category General
Establishing Good Credit
Having spent numerous years educating and counseling service members, I have come to realize that a very large number of them have very little if any financial education. Especially now, in my present position, counseling service members who have no knowledge of establishing credit, is a daily occurrence. Regardless of the reason, these young adults never acquired this knowledge at home or while in school. For many of them, the military is their first regular paying job. They are expected to learn their new skill, be an outstanding service member, and, for the most part, live on their own. Living on your own comes with great changes and responsibility. Everything from feeding yourself, to showing up to work on time is now done without a lot of outside assistance. The days of mom and dad feeding you and making sure you are up and moving in the morning are over. There is no longer a parent or bus to take you to school every day. This is the foundation for the first large financial decision that most young service members must make; purchasing a vehicle.
For those of us who have established credit(good credit), purchasing a vehicle may seem like an easy task, however, for someone who has nothing more than a checking and savings account it is more difficult. With a good established credit score, you can walk into a bank or credit union and, in minutes, walk out with a pre-approved loan to purchase a vehicle. You can even take care of this over the phone. With no credit history, this is a different story. Forget about doing it over the phone. You can also forget about it only taking a few minutes. You are also not going to be offered as low of an interest rate. Without a history of credit, you will be expected to show proof of employment and some history of paying bills over consecutive months. The bank or credit union will use this information to fill out a scorecard which will help decide your interest rate. It is because of this scenario and others like it, we see the importance of establishing good credit as soon as you turn 18.
Establishing at least one savings and checking account should be the first step. Having done this, acquiring a secured credit card, could be your next step. Unlike prepaid cards, secured credit cards give you a credit line, and your payment activity will be reported to the major consumer reporting agencies. Getting a secured card is easy! Funds you deposit, usually $250 or more, are used as collateral by the bank or credit union for the credit card. You use the card like any credit card. This allows you to build or rebuild your credit history by making on time monthly payments to all of your creditors and by maintaining your balances under the credit limits. Over time, as you build your credit file, you can switch to a traditional credit card. Be certain to select a secured card that reports to all three of the main credit bureaus (Equifax, Experian and TransUnion), because not all cards do. When my son turned 18, he acquired a secured credit card and utilizes it, vice a debit card. Credit cards are safer against fraud and provide greater consumer protection on purchases. They also earn points that can be utilized to acquire gift cards or other items. However, the trick is to use the credit card like a debit card and pay it off as you make purchases, not letting the balance build. Paying in this manner requires you to be a little more proactive with your account, but you will not pay interest and you will always be on time.
After you have mastered the use of the credit card for a few months, continually paying off the balance, it is time to work on another line of credit. Again, using my 18 year old son as my example, after he showed he could use his credit card responsibly, he pursued a second line of credit. For this line of credit he went to a local credit union and obtained a secured loan. A secured loan is a loan that has collateral attached to it. This type of loan generally has a lower interest rate because the bank is taking a lower risk and it can collect the collateral if you default on payments. The process was fairly simple. He made a deposit of $400, which acts as the collateral, while the loan officer checked on his credit report. He then filled out the application for the secured loan in the amount of $300. Within a few minutes, the loan was approved, he had the $300 deposited into his savings account, then set up an automatic payment from his savings to pay off the loan over the next six months. By depositing the money into his savings account, part of the interest he will pay for the loan will be offset by the interest the money earns in his account. He was in the credit union about an hour and now has a second line of credit. The cost of the loan was 2.25% interest. Pennies for a good line of credit.
You now have two lines of credit and have been paying on your secure loan for four or five months, what is next? Your next line of credit may be another credit card or another secured loan. If your choice is a credit card, shop around. A second credit card may not need to be a secured card. This card, which we will only use for food purchases, can be an unsecured card with no annual fee, but still receives awards points. Due to the fact that you are only using the card for food, a limit of no more than $500 is the most practical. However, for credit reasons, you will want to keep your charges below $250. Having a credit card “maxed out” will hurt your credit score as well. Just remember to shop around. Don’t be afraid to get on the phone and talk yourself into a better deal.
It has been six months to a year since you first started to establish your credit. What have we done so far? We have established one, preferably two, savings accounts and one checking account. We have one secured credit card, one secured loan and one unsecured credit card. Now it is time to see what interest rate your bank or credit union will offer you for the purchase of a vehicle, which will give you a good idea of how your score is progressing. Keep in mind that all banks and credit unions have slightly different criteria you must meet in order to get their best rates. However, the bank or credit union should always be your first stop when purchasing a vehicle. You always want to have the bank or credit union pre-approval prior to walking into a dealership. Additionally, you want to avoid lenders that appear to target the military and/or primarily provide their services online.
At the time of this writing, it had been 9 months since my son turned 18 and his credit score was 761 from Equifax.
by David Blyar
Relief Services Assistant (RSA) for the Navy-Marine Corps Relief Society
Retired Master Gunnery Sergeant (USMC)
Command Financial Specialist
May 6, 2013 at 8:01 am, by admin | 1 Comment | Category General
The State of Older Americans and Savings
The numbers are shocking.
- In 2012, the average credit card debt among adults aged 65+ was $9,283 (Demos).
- One-third of senior households has no money left over each month or is in debt after meeting essential expenses (Institute on Assets and Social Policy).
- The share of Americans 65 and older in the labor force went from 12.1% in 1990 to 16.1% in 2010 (Census).
- 60% of women over 65 across the country lack the incomes to meet basic expenses (Wider Opportunities for Women).
As part of Older Americans Month, America Saves is stressing the need for all Americans to save for their future. With Americans, especially women, living longer – the reality is that Americas need to save more money for retirement or to work longer.
Tips to Prepare to Live Debt Free in Retirement
- Start saving, keep saving, and stick to your goals
- Know how much you will need for retirement
- Save at work and/or through a Roth IRA
- Find places to cut back so you can save more
Already Retired and Need Help: You Gave, Now Save
Millions of low-income seniors continue to miss out on nearly $1.2 billion in benefits that can help them pay for their health care, prescriptions, food, utilities, and more. These aren’t handouts—by working hard their whole lives, older adults have paid into the programs that can now provide them support needed to remain healthy and independent.
- BenefitsCheckUp ®—a service of the National Council on Aging (NCOA)—is the nation’s most comprehensive web-based service offering information on benefits programs, specifically programs for people with Medicare and limited income and resources.
- The Eldercare Locator, a public service of AoA and administered by n4a, is a nationwide service that connects older adults and their caregivers with information on senior services. The Locator is available both online http://eldercare.gov and as a toll-free hotline at 1-800-677-1116.
About Older Americans Month
Older Americans Month is a proud tradition that shows our commitment to honoring the value that elders contribute to our communities. This year’s Older Americans Month theme—“Unleash the Power of Age!”—highlights the significant contributions made by thousands of older Americans across our nation. The event is organized by the Administration for Community Living and the Administration on Aging.
By Katie Bryan, America Saves Communications Manager
April 29, 2013 at 12:14 pm, by admin | No Comments | Category General
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