June 2nd, 2010
Dear Credit Karma… Fixing Credit After Bankruptcy
Dear Credit Karma,
How do I start rebuilding my credit after filing Chapter 7 bankruptcy?
Bankruptcy will deal a devastating blow to your credit and credit score, but rest assured, rebuilding your credit and lifting your finances out of the red can start right away.
February 2nd, 2010
Dear Credit Karma – Credit Cards
Dear Credit Karma,
I have a credit score of 613 after filing bankruptcy a year ago. What is the best secured credit card to start with?
The Public Savings Bank Secured Visa Card is a great first step to rebuilding your credit and also guarantees approval because there is no credit score or income requirement. Like most secured cards, the Public Savings Card requires an upfront security deposit of a minimum $200 and up to $1,500, which also determines your credit limit. Secured cards reports to all 3 major credit bureaus just like unsecured credit cards, but should you ever default on a payment, the minimum will be deducted from your security deposit so you can continue to build a positive credit history.
January 12th, 2010
Dear Credit Karma – Items On Credit Report
Dear Credit Karma,
How do I challenge items listed on my credit report, and will this help my credit score?
If you are challenging items erroneously listed on your credit report, make sure to dispute the items in question to all three credit bureaus. Clearing up mistakes on credit reports typically boosts credit scores anywhere from 5 to 50 points, though there is no sure formula of knowing how much your credit score will improve. Credit scores are calculated based on a complex algorithm, but we do know how certain derogatory marks can damage your credit and the Credit Simulator will give you a good idea of how your credit score can change over time if you take certain financial actions.
Dear Credit Karma,
Does your credit get restored after 7 years and when will you know?
If you are waiting for negative marks to fall off your credit report, your credit will not necessarily “restore” immediately– but it will help your credit score over time. Certain bad credit marks, such as charge-offs, delinquent accounts, and tax liens, will remain on your credit report for 7 years and ages out of your credit report after that time. Make sure the item has been accurately wiped from your credit report by ordering your credit report on AnnualCreditReport.com. Verifying your own credit history is the only way to ensure accuracy; just knowing your credit score won’t provide you with that level of detail. Once the item falls off and the rest of your report is in good standing, you will start to see improvement on your credit score.
Dear Credit Karma,
I have a credit score of 568 and some of the items are over 7 yrs old. Will disputing and having old baggage removed make a difference in my credit score?
Disputing “old baggage” will make a difference if you can succeed in having them removed from your credit report. Derogatory items, such as late payments and charge-offs, are deleted from credit reports after seven years, with the exception of bankruptcies, which remains for 7 to 10 years. Credit bureaus start the 7 year countdown from the Date of Last Activity or Date of Last Contact, which is listed under the account entry in your credit report. If there is a negative mark on your report damaging your credit score that you think should have already fallen off your report, investigate by looking over your credit report from all three credit bureaus to see when the 7 year term started. If the items have aged beyond the 7 year limit but remain listed, dispute the items with the credit bureaus.
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
January 5th, 2010
Dear Credit Karma – All About Auto Loans
Dear Credit Karma,
I was recently divorced and my ex-husband has an auto loan and my name is still on the debt, how do I go about that debt NOT affecting my credit score anymore?
The only way to remove yourself as a co-signer on this loan is for your husband to refinance the car under his name alone. This new loan will replace the old loan and you will no longer be liable as a co-signer. But in the meantime, any actions– including default or missed payments– taken on the account by you or your ex-husband will damage both of your credit scores. The debt will remain on your credit report as long as you are a co-signer, so have him refinance the loan as soon as possible to protect your credit score.
Dear Credit Karma,
My husband and I share a car – I really need to get my own, but we filed for bankruptcy a year and a half ago. I have poor credit because of that (and struggle with making payments on time). How likely am I to get an auto loan?
While bankruptcy is a tough financial pitfall to recover from, take heart: it won’t haunt your credit forever, and you can get an auto loan, but at a steep cost. If you are set on buying a car now, you will likely resort to a subprime or high risk lender, who cater to borrowers with poor credit, who will likely approve your loan. The real question is not “how likely are you to get an auto loan?”, but “can afford the exorbitantly high interest rate those types of lenders typically charge?”. Check out difference in payments between a poor credit and good credit borrower for a $25,000 loan on a 48-month payment plan:
|
Credit Score
|
Interest Rate
|
Monthly Payment
|
|
|
Poor Credit Borrower
|
620-659
|
13.2%
|
$673.17
|
|
Good Credit Borrower
|
720-850
|
5.7%
|
$583.69
|
*interest rates from Five Cent Nickel
That’s a difference of about $89 a month, which adds up to $4,295 difference in payments over the life of the loan. To see what kind of interest rate you’ll be offered and if you can afford it, look up your credit score and compare it to Five Cent Nickel’s auto loan interest rates.
The lesson here is that while you might need the car right now, the extra cost in interest rates over time may be reason enough to hold off on purchasing a car until you have better credit. Tacking an extra car loan payment may worsen your credit and overwhelm you with debt, especially if you are already struggling to make payments on time. Consider alternatives like carpooling, public transportation, or a system of sharing the car with your husband. In the meantime, take the next few months to improve your credit score with healthy credit habits like making on-time payments, using a secured card, and using the money you would have used on a new car to pay off existing debts. Within a year or so, you will have a higher credit score and be able to receive better financing options from lenders.
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
