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The Rocky Road to Recovering from Bankruptcy in 4 Easy Steps

By | Bankruptcy, Collections, Credit Repair, Credit Scores, Your Credit

One of our favorite movies of all time is Rocky IV, where he defeats the unbeatable Drago. Rocky gets hit hard, but doesn’t give up, and because of his hard work and training, defeats his opponent. Recovering from a bankruptcy is a lot like Rocky’s journey (minus the cool soundtrack).

When you file for bankruptcy, it’s usually your last resort. You’ve been backed into a corner and the punches keep coming, but bankruptcy lets you get out of that corner and continue the fight. It’s time to put on the gloves and face that seemingly unbeatable foe and get started repairing your credit score.

4 Steps to Repairing Your Credit After Bankrupty

Examine Your Credit Report: The first step is to get a copy of your credit report and go over it with a fine-toothed comb. You need to check to make sure all the accounts were placed on the bankruptcy and that all the information is correct. There may be negative accounts on your credit report that were paid off prior to the bankruptcy which have inaccurate information or shouldn’t even be on it anymore. The bankruptcy will have a big impact on your credit score, so anything you can do to raise it by making sure everything on your report is correct only helps.

Create a Budget: If you declared bankruptcy, then you were in a negative debt situation to begin with. You need to create a realistic budget based on your income. This budget needs to include all bills and necessities as well as an amount dedicated to repairing your credit. You can use this to start a nest egg savings before applying for a new credit or use it to make payments on new credit.

Build Your Credit Score: Declaring bankruptcy doesn’t mean you will not be eligible for any credit at all. There are companies that specialize in providing credit, such as credit cards, to people with bad credit scores and bankruptcy. The company is taking a risk giving you credit, so the interest rates on these cards are high. You can also apply for a secured credit card, where you pay the credit amount first and they keep it on hand in case you default on the card. You have credit and the card will charge interest and report to the credit bureaus.

Note: Do not apply to several credit cards or other credit lines. Bankruptcy is a red flag for most creditors and will be difficult for you to be approved. Each time a creditor looks at your report, it can have an impact on your score. These are called hard inquiries.

Pay On Time: It takes 10 years for a bankruptcy to be taken off your credit score, so it’s important to build your credit the right way. Make sure you pay all of your bills on time because late payments create a negative impact. Do not get too much credit debt and keep your balances to about 10 percent of the total limit.

If you follow these steps, then the bankruptcy can be the inspiration needed to beat that unstoppable foe of debt and get your life back on track. You can give debt a K.O. if you are willing to be disciplined and fight to the finish.

Don’t Get Hung Up On Your Credit Report

By | Ask a Credit Expert, Credit Cards, Credit Laws, Credit Reports, Credit Scores

Remember playing Hangman as a kid? There was a lot of guessing involved, and depending on who you played with, the rules of the game could change. Unfortunately, managing your credit can be a little like playing a game of Hangman – your opponent is not necessarily dishonest, but they sure don’t come out with all of the information without you working hard to make sure every letter is there.

On a credit report, the information each lender reports can change the way your credit looks. Say that you have three credit cards, all with the same balance, and all with the same credit limit of $5,000. One of those cards reports the amount of credit that you are using, $2,500 without mentioning your credit limit. Another only reports back 24 months worth of your payment records, despite your faithful payments and responsible spending for 10 years. And, the third one just does not bother reporting anything at all.

We all operate under the assumption that everything is reported to the credit agencies going back 7 years, but when each company can report – or not – what they want to, you’re left with an incomplete picture. Potential lenders evaluate your credit history, and also your debt to credit limit ratio, or utilization without all of the information they need to see all they need.

Fortunately, you do not have to leave your fate up to pencil and paper games. Instead, make sure that you understand how your creditors will be reporting your data, if at all, prior to opening up accounts with them. In addition, make sure that you take the time to pull your most up-to-date credit report from the three big credit reporting agencies.

Credit agencies offer free credit reports to reel in customers to expensive credit monitoring memberships. Don’t fall for it. By law, everyone in the U.S. is entitled to a free credit report every year from annualcreditreport.com. The information can be a little stale, and may not show the up-to-date information that you need, but it’s a place to start.

Or, for no more than $15 from each of the three major agencies, you can obtain the most up-to-date information. This also allows you to establish contact with each of the agencies, where you may pose questions, challenge information that appears on the reports, and dispute inaccurate information. The credit agencies are obligated to investigate and resolve issues and allow you to add comments to the report to explain the situation, so take advantage of becoming a more active participant in your credit profile.

Somebody’s Watching You…

By | Consumer Rights, Credit Laws, Credit Repair, Credit Reports, Credit Scores

No, we’re not reminiscing about the 80’s hit by Rockwell…this is more sinister. From hacking computer systems to trapping codes at ATM machines, identity theft is rampant and can have a devastating impact on your life. It can affect your ability to buy a car or a home, it can prevent you from getting a job, and there have been (albeit rare) cases of innocent people being arrested for crimes committed by an identity thief. Keeping a close eye on credit reports is an excellent way to detect fraudulent activity, and credit monitoring can be a helpful tool to do just that.

The three credit reporting agencies – TransUnion, Equifax, and Experian – are required by the federal government to provide an annual copy of your credit report at no charge. Go to AnnualCreditReport.com to order it and monitor your own credit by reviewing it carefully to ensure all information is accurate. Doing this once a year is the first step toward thwarting thieves.

The next step would be to hire a company to monitor the credit reports real time and inform you, probably via email, of any changes. Most notices would regard changes in account balances on credit cards or an inquiry for a line of credit at a retail store. In an identity theft scenario though, a thief might use your social security number, stolen while dumpster diving at a local bank, to apply for a new credit card. The timely credit monitoring service notification of this fraudulent application for credit could mean the difference between a small hassle and full-blown, financially crippling identity theft.

Sadly though, not all credit monitoring services are created equal. The ones managed by the three credit reporting agencies are typically pretty good, and the timeliness of the information is excellent – which is the most important element in the detection of fraud. Some of the second tier services though report outdated information since they have to pay for the data and retrieve it periodically from the primary agencies. Another potential problem with the second tier services is that they may offer a free credit report (mimicking the government-mandated service), but once the consumer accepts the free report, they are unwittingly enrolled in a potentially expensive service. What a sneaky and underhanded thing to do – it sure doesn’t make us want to trust them with our financial information.

The Federal Trade Commission (FTC) has a program called “Deter, Detect, Defend: Avoid ID Theft.” It is a good program, especially in its education about how to protect personal information (and thereby deter ID theft). Combine this with credit monitoring by a high quality provider and good financial decision-making, and we will stop letting the identity thieves bully us.

Wrap Yourself in a Bubble and Weather the Storm

By | Personal Finance

Hurricanes like Irene make us all stop and take stock: do we have some water stored? Do we need a generator? Do we have our important documents (or copies of them) stored away from the path of destruction?

Those are important questions, but one of the most important things we can do to weather any storm – whether it is a hurricane, a bubble bursting in the housing market, or a recession that causes the unemployment rate to double – is a protective cushion of savings.

The American economy has seen more prosperous times. Now, businesses are closing, credit is failing, and people are losing jobs. With the future uncertain, many people are scared about what will happen when or if they lose their jobs.

What will happen if they are laid off? What will happen if they get sick and have to go on half pay disability? How will they pay their mortgage? How will they pay their medical bills? How will they feed their families?

These are all relevant questions, and the answer is the same across the board – start saving now.

Admittedly, it’s easier said than done. Even when you do have extra money when the bills are all paid, it seems like there is always something unplanned – car repairs, school supplies, a trip to the dentist – that make it more difficult, but surviving the chaos of life is a lot easier to do when you have some financial cushion to absorb the impact.

There are many things you can do to stretch your dollars further canceling unnecessary subscriptions and reducing monthly payments on luxuries. Even cooking at home instead of eating out a couple times a week can make an enormous difference in the health of your bank account. Every little bit helps. Even if you only put $25 every week, you’ll start building a buffer between you and the next hurricane, recession, or catastrophe.

At Ovation, we recommend that you create a buffer of at least six weeks to three months. That means that you save up enough money so when problems arise you can at least pay a month or two of bills. It may seem like a hardship to save up that much money, but imagine how much harder it will be if you cannot pay your bills! The sense of relief you feel from having that buffer, knowing that if you lose your job or if you get sick, you have money saved that will keep you afloat until you can stand on solid ground again, is worth sacrificing pizza night now and then.

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