I am halfway through my Chapter 13 payments. I see the light at the end of the tunnel. I have 2 1/2 years to go. My credit score right now is 620. What ways can I rebuild my credit rating in the next two years, so that once I am discharged from the Chapter 13, I could buy a house.
Great question! I understand your wanting to get started working on your credit while you are still paying on your Chapter 13; however, it’s very likely that you may have to wait until you are discharged from your bankruptcy to actually be able to do that. The reason is because the best way to improve (or establish) your credit is to have a revolving account (just another way to say credit card) that is open and actively reporting to the credit bureaus. Because you are still technically in bankruptcy and paying on your Chapter 13, you most likely will be unable to open new revolving accounts.
That being said, before you can be formally discharged from your bankruptcy, you will be required to take a Debtors Education, also called Financial Management, course from an approved credit counseling agency (the process is similar to when you originally filed for bankruptcy, but the course is different and more focused on being successful after discharge). During this course, you will be given tips and tools to start rebuilding your credit. If you are already at a 620 while in bankruptcy, you shouldn’t have to do much once you are discharged to improve your credit score. Additionally, at the moment, many mortgage companies are looking for a 640 credit score to finance a home. So, again, you’re already close to that mark.
On another note, depending on the mortgage lender and the mortgage product you are looking to get, there may also be time restraints on how long they would like you to be discharged from your bankruptcy before they will approve the loan. I believe that time frame is anywhere between 2-4 years; however, these types of things are always fluctuating, so by the time you are discharged there may not be a waiting period, or it may be less than what it is now.
I applaud you for being proactive and wanting to get started while you are still working through your bankruptcy. It could be worth it to try to obtain a small revolving account and keep the balance low while making your monthly payments. Just keep in mind that you may also have to let the Chapter 13 run its course before being able to do that. You’re already halfway through and doing great with it so far, so keep your head up and you’ll be done in no time!
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