It has been right at a year since my chapter 7 was discharged. The cause of my financial distress were multifactorial but, at its root, it was due to eating my credit card hamburger today without planning for Tuesday. I had/have a good income, but I mismanaged it horrifically.
I started off my post-discharge with a leg up. Two credit cards survived BK. They were both at different credit unions and I did not burn either CU for even one red cent. Both CUs were notified as there were on my matrix, but both neglected to close or chose not to close them.
Immediately after discharge, I got reams of car loan offers at usurious rates. These went into the burn pile. I stay-and-paid on my house and my car. I also got some ridiculous credit card offers. No one should ever pay $175 a year for a rebuilder card. Poor decisions like that are why many of us got into financial distress. Any fees you would be paying would be far, far better spent on a secured credit card. Which is what I did. I opened up two $500 secured cards, both with prime lenders. Post-BK, your credit report is likely to go under manual review for any application. Seeing CreditOne and other terrible cards on your post-BK profile is a red flag that you still make bad decisions. Seeing, for example, Discover on your profile means a solid lender has deemed you worthy. It makes a difference. Both of my secured cards were for $500 and both do not report as the secured cards they are.
I also opened up Capital One using the card pre-qualifier. They pre-qualified me for an annual fee card, but annual fee cards are terrible so I applied instead for a non-AF card and was approved. It was only $1000, but it was an approval. Months later, I applied for another card and got a limit a few thousand higher. About 10 months post-discharge, I applied for the Quicksilver (best CapOne card IMHO) and was approved for $10,000. I think Capital One is fantastic for people fresh out of BK .
Where do I stand today, at one year post discharge? I have several credit cards with several lenders. My total limits are over $50K. I have charged up thousands over the last year and earned decent cashback on that. I have never paid even a cent of interest because I pay in full. My FICO scores are around 700 depending on which report is pulled.
The good: I can charge my normal expenses and not worry about debit card fraud and also get good cashback.
The bad: Sometimes I daydream of whipping out the plastic and flying to Switzerland for a 2 month vacation that I can't afford. Old habits die hard. For this, I keep a box of my old credit card statements. It's depressing to look through but if I ever think of buying something I don't have money for in the bank today and already set aside, I need only read my last statement owning over 30K on just one card. :/ Nope, never again.
Should everyone try to rebuild as quickly as I did? No. It can be argued that I shouldn't have either, considering the credit card problems I created for myself in the past. I disagree, but one never knows.
Tips if you want to rebuild:
1. Throw away those awful car loan offers and those hideous credit card offers. Never, ever pay an annual fee, a setup fee, or really any fee. Any lender that would look good on a manual review will offer cards that don't have those sorts of things.
2. Open up a secured card ASAP with a solid lender. Don't apply willy-nilly - do your research. Some lenders, such as Wells Fargo, won't let you open up a secured credit card even if you have a million dollars in cash in your hands that you are trying to give them. They are simply not interested. Use prime lenders who are known to be BK-friendly. A credit union is excellent for this.
3. PAY IN FULL. Always, every time. You should not charge something you don't have money for TODAY. It's great that you get paid on Friday but it's also irrelevant. You either have it in the bank today and set aside for this purchase or you don't.
4. Look at how many people file BK a second time. Statistically, that could be you or me. How do you think that happens? More often than not, I bet it's due to violating number 3. Don't carry a balance.
5. Income matters. Improve yours if possible. There's no way I'd have 50K+ in credit limits at 1 year unless my income supported it.
6. Age matters. The 15K credit card I was approved for would have been declined in a heartbeat if I had gone for that in the beginning. I had to make baby steps and show that I could be trusted to not make bad decisions such as carrying a balance.
7. Build an emergency savings fund. I can't tell you how much to set aside or how to work it into your budget, but prioritize it. You car will break down. It is inevitable. Also, your kid (or you) will break a leg or need to see a doctor. A plumber will be needed for an emergency. These or similar things will happen to you and they will be unscheduled. If you have no emergency fund, you are guaranteeing yourself to go into debt for things that are going to happen whether you like it or not. That means overdraft fees, borrowing money from family, using payday loans, carrying a balance on a credit card, or who knows what else but it means impoverishing yourself by plan. Plan for something else.
One thing I've noticed on here is people saying, "I don't rebuild because I am living only on cash." Then you find a post from them a year or two later saying, "We decided to buy a house and our scores are still 400. We barely got approved and we're going to be paying hundred more in interest every month." I'm considering selling my house and moving to a new area in a few years. It may not happen, but if it does then I'll be very glad I rebuilt to the extent I have and, presumably, even more by that later date. Even 1% APR extra because of bad credit will cost you a small fortune. Consider a $150,000 mortgage at 30 years. The difference between 5% and 6% APR is $33,874. That's only one percent interest difference and bad credit can easily cost you more than just 1%.
I started off my post-discharge with a leg up. Two credit cards survived BK. They were both at different credit unions and I did not burn either CU for even one red cent. Both CUs were notified as there were on my matrix, but both neglected to close or chose not to close them.
Immediately after discharge, I got reams of car loan offers at usurious rates. These went into the burn pile. I stay-and-paid on my house and my car. I also got some ridiculous credit card offers. No one should ever pay $175 a year for a rebuilder card. Poor decisions like that are why many of us got into financial distress. Any fees you would be paying would be far, far better spent on a secured credit card. Which is what I did. I opened up two $500 secured cards, both with prime lenders. Post-BK, your credit report is likely to go under manual review for any application. Seeing CreditOne and other terrible cards on your post-BK profile is a red flag that you still make bad decisions. Seeing, for example, Discover on your profile means a solid lender has deemed you worthy. It makes a difference. Both of my secured cards were for $500 and both do not report as the secured cards they are.
I also opened up Capital One using the card pre-qualifier. They pre-qualified me for an annual fee card, but annual fee cards are terrible so I applied instead for a non-AF card and was approved. It was only $1000, but it was an approval. Months later, I applied for another card and got a limit a few thousand higher. About 10 months post-discharge, I applied for the Quicksilver (best CapOne card IMHO) and was approved for $10,000. I think Capital One is fantastic for people fresh out of BK .
Where do I stand today, at one year post discharge? I have several credit cards with several lenders. My total limits are over $50K. I have charged up thousands over the last year and earned decent cashback on that. I have never paid even a cent of interest because I pay in full. My FICO scores are around 700 depending on which report is pulled.
The good: I can charge my normal expenses and not worry about debit card fraud and also get good cashback.
The bad: Sometimes I daydream of whipping out the plastic and flying to Switzerland for a 2 month vacation that I can't afford. Old habits die hard. For this, I keep a box of my old credit card statements. It's depressing to look through but if I ever think of buying something I don't have money for in the bank today and already set aside, I need only read my last statement owning over 30K on just one card. :/ Nope, never again.
Should everyone try to rebuild as quickly as I did? No. It can be argued that I shouldn't have either, considering the credit card problems I created for myself in the past. I disagree, but one never knows.
Tips if you want to rebuild:
1. Throw away those awful car loan offers and those hideous credit card offers. Never, ever pay an annual fee, a setup fee, or really any fee. Any lender that would look good on a manual review will offer cards that don't have those sorts of things.
2. Open up a secured card ASAP with a solid lender. Don't apply willy-nilly - do your research. Some lenders, such as Wells Fargo, won't let you open up a secured credit card even if you have a million dollars in cash in your hands that you are trying to give them. They are simply not interested. Use prime lenders who are known to be BK-friendly. A credit union is excellent for this.
3. PAY IN FULL. Always, every time. You should not charge something you don't have money for TODAY. It's great that you get paid on Friday but it's also irrelevant. You either have it in the bank today and set aside for this purchase or you don't.
4. Look at how many people file BK a second time. Statistically, that could be you or me. How do you think that happens? More often than not, I bet it's due to violating number 3. Don't carry a balance.
5. Income matters. Improve yours if possible. There's no way I'd have 50K+ in credit limits at 1 year unless my income supported it.
6. Age matters. The 15K credit card I was approved for would have been declined in a heartbeat if I had gone for that in the beginning. I had to make baby steps and show that I could be trusted to not make bad decisions such as carrying a balance.
7. Build an emergency savings fund. I can't tell you how much to set aside or how to work it into your budget, but prioritize it. You car will break down. It is inevitable. Also, your kid (or you) will break a leg or need to see a doctor. A plumber will be needed for an emergency. These or similar things will happen to you and they will be unscheduled. If you have no emergency fund, you are guaranteeing yourself to go into debt for things that are going to happen whether you like it or not. That means overdraft fees, borrowing money from family, using payday loans, carrying a balance on a credit card, or who knows what else but it means impoverishing yourself by plan. Plan for something else.
One thing I've noticed on here is people saying, "I don't rebuild because I am living only on cash." Then you find a post from them a year or two later saying, "We decided to buy a house and our scores are still 400. We barely got approved and we're going to be paying hundred more in interest every month." I'm considering selling my house and moving to a new area in a few years. It may not happen, but if it does then I'll be very glad I rebuilt to the extent I have and, presumably, even more by that later date. Even 1% APR extra because of bad credit will cost you a small fortune. Consider a $150,000 mortgage at 30 years. The difference between 5% and 6% APR is $33,874. That's only one percent interest difference and bad credit can easily cost you more than just 1%.
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