If your past financial circumstances left you with no choice other than to file bankruptcy, you may be working on rebuilding your credit file. Bankruptcy plummets your credit score down to the lower 400s, so the task at hand is not simple – but not impossible either. You can reestablish yourself as being creditworthy in a year or less with a fresh start loan.
A fresh start loan is a loan that most banks are more than happy to approve. You can be looking at credit scores of 700 or better in no time.
Fresh Start Loan Jump Starts Credit Rehab
When you take out a fresh start loan, you deposit an amount that is equal to the amount that you wish to borrow into an interest-bearing savings account with the bank or lending institution. The lender then loans you the amount that you deposited; you then make monthly payments on the loan until it is paid off. Your savings account is used as security on the loan.
The advantage of taking out a fresh start loan that is backed by a savings account is twofold. The loan not only works to improve your credit score by reporting your good payment history to all three major credit bureaus, the savings account looks good to other potential lenders while it pays interest on your money.
Keep Your New Slate Clean
Since the discharge of your bankruptcy, you are starting new with a clean slate. This is the best time to become a responsible borrower. There are a few basic strategies that can point you down the right road when it comes to rebuilding your borrowing reputation.
The most important first step is to formulate a budget and stick to it. A budget is important because it assists you in making intelligent and financially sound decisions during the vital months following bankruptcy. Never extend your credit beyond the 28/36 ratio that lenders look at when they determine your eligibility for a loan.
Implement the 28/36 Ratio
The 28/36 ratio is typically used to mortgage financing; however, following its guidelines can help to improve your credit score fast. The 28 in the 28/36 ratio means that you should dedicate no more than 28 percent of your gross monthly income on housing payments. This could apply to rent if you are a non-homeowner. The 36 stands for setting aside no more than 36 percent of your gross monthly income towards recurring debt payments, including your housing expense, car loans, student loans, credit card payments, child support, or judgments. That means that if you have a gross monthly income of $2000 – your combined housing payment and other debt payments should not exceed $720. Implementing the 28/36 ratio system into your budget can be a sure-fire way to succeed in rebuilding your blemished credit file.