MORTGAGE DELINQUENCIES CONTINUE TO CLIMB

New data from Equifax and Moody’s Economy.com revealed that mortgage delinquencies increased again in August, according to the Wall Street Journal. Nationwide, 3.56 percent of mortgages were at least 30 days past due last month, up 0.31 percentage points from July. The delinquency rate has increased about 1.5 points since bottoming out at the end of 2005, with fully half of that increase coming in the last three months. Delinquencies have climbed since August 2006 in all 50 states, and 10 states have posted an increase of more than one percentage point. The share of problem loans has increased most sharply over the past year in Florida, Arizona and Nevada. Those three states — plus California and New York — saw the highest increase in the rate of foreclosures.

LENDERS REQUIRING HIGHER CREDIT SCORES

The current credit crunch, which has spilled over from subprime mortgages into other types of lending, is putting a greater premium on high credit scores for borrowers looking to finance or refinance large purchases, the Wall Street Journal reported. Until this summer’s subprime crisis, a score of 720 or higher earned you some of the best interest rates, says John Ventura, director of the Texas Consumer Complaint Center at the University of Houston Law School. Borrowers now need a score in the high 700s to get the same benefits, he says. The benefits are dramatic for mortgages. Raising a score from a range of 580-619 to 660-699 could save someone with a 30-year, $300,000 fixed mortgage $5,148 in one year, according to Fair Isaac’s Web site.

U.S. House bill would let bankruptcy courts alter mortgages

Bankruptcy courts would be allowed to alter mortgages written by
"predatory lenders" in moves that could save 600,000 Americans from
foreclosure, according to the author of a bill recently introduced in the U.S.
Representatives.

The legislation would repeal a provision that prohibits a bankruptcy
court from modifying a home mortgage, according Representative Brad
Miller, a North Carolina Democrat, who sponsored the bill along with
Democrat Linda Sanchez of California.

The bill is co-sponsored by Barney Frank, a Massachusetts Democrat and
chairman of the House Financial Services Committee.

Delinquencies and foreclosures have soared in the past year in the
United States, putting the spotlight on ways to modify loans that are
resetting to higher interest rates. One problem is that most mortgages
made in recent years are contained in mortgage securities, many of which
hold covenants that do not allow a lender to change the terms of a loan.

Bankruptcy law bars mortgage restructuring even when a foreclosure is
near. Foreclosures are expected to rise as payments on some 5 million
adjustable-rate mortgages increase over the next 18 months.

"Responsible lenders who made loans on reasonable terms have nothing to worry about in bankruptcy court," Miller said in the statement. "Predatory lenders" may be saddled with the loans, he said.

Under loan modifications, the lender and loan-servicing company change
the mortgage terms to make them more affordable to the borrower. This
can include lower interest rates and forgiving a portion of the
principal.

Wall Street and bond rating companies have criticized loan modifications
since investors who bought the riskiest portion of the bonds may be
treated more favorably than owners of safer slices once a loan is
modified.

The bill may encourage lenders to do more modifications, which are now
"few and far between," Miller said in an interview. A report by Moody’s
Investors Service recently found that lenders eased borrowing terms on
just 1 percent of subprime mortgages with interest rates that reset
higher in January, April and July.

"Everyone will know what will happen in bankruptcy, so the fact that
bankruptcy is an option would lead to negotiations" ahead of that event,
he said.

Despite the hurdles, modifications are seen as still the best
alternative for the $7.2 trillion mortgage bond market, which is
credited for both raising money for the U.S. real estate boom and the
excesses that brought housing to its knees last year, according to the
American Securitization Forum, a lobbying group. Foreclosure is more
costly for lenders and investors, it argued.

The bill is also co-sponsored by Democrats Carolyn Maloney from New York and Mel Watt from North Carolina.

Subprime credit card direct mailings on the rise

From: American Banker

Credit card companies have increased their targeting of customers with poor financial histories, many of whom may be defaulting on their subprime loans, according to the market research firm Mintel International Group.

Direct mail credit card offers to subprime customers in the United States rose 41% in the first half of this year compared with the first half of 2006, while direct mail to customers with the best credit dropped more than 13%, The Boston Globe reported, citing Mintel.

The crisis in the housing and mortgage markets has left many subprime borrowers unable to pay their bills or refinance their homes for cash, and many have been forced to use credit cards, according to Julie Lizer, Mintel’s manager of custom research.

Travis Plunkett, the legislative director of the Consumer Federation of America, said some card issuers "are engaging in risky, irresponsible lending to vulnerable consumers."

North Carolina Enacts New Law to Prevent Reckless Home Lending

As the disastrous consequences of reckless subprime lending continue to mount, North Carolina lawmakers are standing up for homeowners by making it tougher to offer abusive home loans. This past month, the North Carolina Home Loan Protection Act (HB 1817) passed the State Senate 33-15 and the State House 113-0. Governor Mike Easley, a strong supporter of the bill, held a signing ceremony to usher in the new law, which offers stronger protections against dangerous subprime mortgages.

The new law directly addresses the current subprime crisis, weeding out questionable business practices on mortgage financing that are driving massive subprime foreclosures. A key provision in the law requires lenders to verify that their customers have the ability to repay the loans they are offered. This is particularly important for subprime mortgages with adjustable interest rates, since lenders must consider future rate increases before approving loans.

"North Carolina is simply saying that lenders must return to common-sense underwriting practices," said Michael Calhoun, President of the Center for Responsible Lending. "Until the subprime market veered out of control, all reputable lenders documented income and verified a home buyer’s ability to repay the mortgage."

The new law updates the definition of protected mortgages loans to make it consistent with a widely used federal definition, ensuring that most subprime mortgages will receive added protections.

These are among the key provisions in the law:
— Bans costly prepayment penalties that trap homeowners in high-cost
loans.
— Requires lenders to document income — a standard practice by
responsible lenders through most of the history of mortgage lending.
— Includes all broker compensation when determining whether a loan is
high cost.
— Strengthens brokers’ duties to serve the best interests of their
clients.
— Ensures that homeowners have the right to pursue legal actions when
violations occur.

Broad Support

The new law drew remarkably diverse support, including support from regulators and key industry leaders as well as consumer groups. North Carolina’s Attorney General was a strong and important ally in this fight, as was the Commissioner of Banks. Among the dozens of organizations behind the bill were the N.C. Bankers’ Association, the N.C. Credit Union League, the N.C. Justice Center, the N.C. Council of Churches, and the state chapters of the NAACP, AARP and the AFL-CIO. The broad support underscores the point that the new protections will be good for consumers, and they will be good for responsible businesses, too.

Building on Previous Protections

In 1999, North Carolina passed the first comprehensive law aimed at predatory lending on home loans. That law — which became a model for many other states — focused on equity-stripping practices, such as loan flipping and abusive single-premium credit insurance. This "first wave"
of state protections did not address ability-to-repay requirements, since, until recently, most lenders performed such assessments routinely. North Carolina joins Ohio, Maine and Minnesota in taking the lead in combating a second wave of predatory lending practices, one that has been dominated by dangerous loan products and loose standards for loan approvals.

Credit Crunch Moves Beyond Mortgages

Individuals See Higher Rates,
Harsher Terms on Credit Cards
And Other Consumer Loans

By JANE J. KIM
August 22, 2007

It’s not just mortgages. As it gets tougher to land a home loan, some people are also finding it harder and more expensive to get other types of consumer credit.

Some lenders, such as USAA, are nudging up credit-score requirements across their auto loans, credit cards and personal loans. Bank of America Corp. and Capital One Financial Corp. recently raised fees and interest rates for some of their credit-card customers. And this month, Citigroup Inc.’s CitiFinancial Auto started charging higher auto-loan rates for borrowers with less-than-perfect credit.

TIGHTER CREDIT

• Some lenders are raising fees and tightening credit on credit cards and auto loans.
• Lenders are likely to make it harder for borrowers with weaker credit in markets hit by a housing downturn.
• Watch your credit card mailings for any changes in terms and conditions. You may be able to opt out of the new terms.

All this comes as lenders continue to tighten guidelines on mortgages and home-equity loans and lines of credit as investors back away from subprime loans and other perceived credit risks. For the most part, lenders say the changes aren’t directly tied to the mortgage mess, but reflect concerns about an economic slowdown and uncertainty about interest rates. Still, some lenders are becoming more cautious about extending credit in weaker housing markets and to people who may have exposure to certain riskier mortgages.

"In the past few months, we’ve been tightening up our credit underwriting standards and raising our score cutoffs slightly," says Barbara Johnson, vice president of USAA Federal Savings Bank, referring to the bank’s credit cards, auto loans and personal loans. The bank has also scaled back credit-line increases in its credit-card business. "We used to offer frequent, automated line increases, and now, we’ve pulled back on that a little bit," she says.

A spokesman for J.P. Morgan Chase & Co.’s Chase says the company has been tightening up credit guidelines across some consumer products, such as home-equity and auto loans, mainly among customers with weak credit who live in markets that have been hurt by a decline in home prices.

Lenders aren’t tightening credit standards nationwide. That’s why the average interest rates on many types of consumer loans haven’t changed much since the beginning of the year. Rates on variable-rate credit cards, five-year new car loans and personal loans are averaging 13.9%, 7.8% and 14.5%, respectively, roughly the same as they were in January, according to Bankrate.com.

Card issuers can afford to be more selective about whom they extend credit to and by how much because more consumers — increasingly locked out of home-equity loans and lines of credit — are using their credit cards more. This month, for example, the Federal Reserve said consumer credit rose at an annual rate of 6.5% in June to a record $2.459 trillion, the second straight sizable gain. The increase was led by an 8.4% rate of increase for revolving credit, the category that includes credit-card debt.

Doug Eddings, a 35-year-old small-business owner in Portland, Ore., says three of his credit-card issuers all took steps in recent weeks to tighten his credit, either by raising his interest rate, halving his available credit or freezing his accounts. First, he received a notice from Chase in June, notifying him that it was going to raise the interest rate on his Chase Amazon card to 29% from 17%. Soon after, another lender, HSBC Holdings PLC’s HSBC North America, dropped his $5,000 credit line on his Best Buy store card to $2,105 — just $5 above his current balance.

"When I called them up, they didn’t have an answer for me but said it was something in my credit file," says Mr. Eddings, who had recently used the card to buy a refrigerator for his new home.

He also got hit with a "financial review" this month from American Express Co., which froze his accounts until he could send in additional tax forms from the IRS for them to look at. Although Mr. Eddings, who has a high credit score, says he hasn’t been late on any payments, he recently requested a credit-line increase on his Delta SkyMiles card, which American Express raised to $15,000 from $5,000.

In addition, he took out an interest-only mortgage this past spring through a local broker to buy a new home. His mortgage was originally offered through American Home Mortgage Investment Corp., which filed for bankruptcy-court protection earlier this month, and was then sold to Countrywide Financial Corp. "I don’t know if it has anything to do with the mortgage industry, but it does seem coincidental," Mr. Eddings says.

Economists are increasingly worried that the credit crunch in the mortgage market could spread further into other types of consumer loans. The Federal Reserve’s quarterly survey of senior loan officers, released last week, showed a small increase in the number of banks that have tightened credit standards for consumer loans (excluding credit cards) over the past three months.

This week’s drop in short-term Treasury bill yields is yet another symptom of the turmoil that’s roiling the credit markets, since it signals that investors are fleeing to the safest assets available. "If this turns out to be a blip on the radar — one to two weeks, even a month — then it will probably only have a modest impact" on lenders’ credit standards, says Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn. "But if we see these sorts of conditions continue for months and months, then it probably will start to have an impact on the way that lenders see risk in the consumer-credit arena."

Industry consultants say there are signs that card issuers are already becoming more cautious. Average credit-card approval rates across the industry have dropped by five percentage points to 35% over the past year, while credit lines for subprime borrowers have fallen to an average of $1,000 from $1,250 a year ago, according to Robert Hammer, chief executive of R.K. Hammer, a bank-card advisory firm.

Issuers have also cut back on direct-mail offers to new customers. In the second quarter, such offers were down 6% from the first quarter, continuing a decline that began at the end of last year, according to Mintel International Group Ltd.’s Mintel Comperemedia unit, a direct-mail market-research firm. Meanwhile, credit-card and consumer news Web sites such as CardRatings.com, Credit.com and ConsumerAffairs.com say they are getting more complaints from consumers who have seen their credit lines fall or interest rates jump.

Nationally, credit-card delinquencies are relatively low at 4% and haven’t risen significantly in the past three years. However, in certain markets, especially those that have been hit hard by a decline in home values, delinquencies have spiked higher. In Fort Myers, Fla.; Port St. Lucie, Fla.; and Stockton, Calif., for example, delinquencies have jumped about two percentage points in the past year to as high as 5%, according to an analysis by Equifax Inc. and Moody’s Economy.com.

"If [lenders] see a household start to go late on payments, they’re going to be much quicker to respond," says Mark Zandi, chief economist at Economy.com. "They may reduce the size of the credit line or may raise the interest rate. They’re responding much more quickly to any signs of stress."

Patti Powell, a 49-year-old child-care provider, got a notice from Barclays PLC’s Juniper Bank last month telling her that her account, which she had for several years, was being closed. The Lovington, N.M., resident says she wasn’t late on any payments and mailed in more than the minimum payments each month. But in recent months, she started to use the card more, and her total balance had climbed to about 80% of her available $3,000 credit line, from about 22% previously. In a separate move last year, American Express dropped the credit lines on two of her cards, she adds.

For their part, lenders say they are monitoring the credit environment carefully. A Citigroup spokesman says the bank is "constantly adjusting our underwriting standards to best reflect market conditions, updates to our risk models and a variety of other factors," while a Bank of America spokeswoman says it hasn’t seen "significant issues or had to significantly change our underwriting standards" in the current environment. Chase, meanwhile, is "thinking hard about the loan qualifications for people," says spokesman Tom Kelly, who adds that "most consumers can still get credit at a fair rate."

For consumers, it’s a good idea to look out for any change in terms and conditions from the issuers. Although issuers can change rates and fees at any time, many will allow customers to opt out of those changes and pay off any balances under existing terms — although they will typically have to close their accounts. In recent months, Capital One, for example, changed many of its fixed interest rates to higher variable rates, while Bank of America implemented a new monthly minimum finance charge of $1.50 on former MBNA credit-card customers this past spring to bring charges in line with its existing customers’ fees.

Meanwhile, Discover Financial Services recently raised the higher end of its interest-rate range to 18.99% from 17.99% and began charging higher minimum payments for certain customers who used over 90% of the available credit on balance-transfer offers.

Another victim of the trend toward tightening credit: once-generous introductory credit-card offers. "We’ve seen the length of the introductory periods diminish on certain offers and more lenders offering introductory rates ranging from 2.9% and 6.9% instead of 0% financing offers," says Curtis Arnold, founder of CardRatings.com.

URL for this article:
http://online.wsj.com/article/SB118773982869404682.html

Bankruptcy Filings Up 48% in First Half of 2007

The total number of U.S. bankruptcies filed during the first six months of 2007 increased 48.23 percent over the same period in 2006 in all bankruptcy court districts, according to data released today by the Administrative Office of the U.S. Courts. Total filings reached 404,090 during the first half of the calendar year of 2007 (January 1-June 30), compared to 272,604 cases filed over the same period in 2006. Filings by individuals or households with consumer debt increased 48.34 percent to 391,105 for the six-month period ending June 30, 2007, from the 2006 first-half total of 263,660. The overall percentage of consumers filing for chapter 13 protection fell slightly from 41.15 percent during the first half of 2006 (January 1-June 30) to 38.35 percent over the same period in 2007. Conversely, the first-half 2007 percentage of chapter 7 consumer filers increased to 61.58 percent from the 58.76 percent recorded in the first half of 2006. Business filings for the six-month period ending June 30, 2007, totaled 12,985, representing a 45.18 percent increase over the first-half 2006 total of 8,944. Chapter 7 liquidations increased to 8,404 in the first half of 2007, a 65.21 percent increase over the 5,087 business chapter 7 filings during the same period in 2006. Chapter 11 reorganizations also rose from 2,370 in the first half of 2006 to 2,713 in the same period of 2007, a 14.47 percent increase.

A Widening Credit Squeeze?

With the home-mortgage crunch roiling stock markets, economists are beginning to worry about America’s credit-card debt.

By Susanna Schrobsdorff
Newsweek
Updated: 4:03 p.m. ET Aug 9, 2007

Kristin Schantz, a 26-year-old manager for a human-resources company in Kenosha, Wis., got some unpleasant news in the mail last week. In a form letter, Capital One told her the interest rate on her credit card was about to almost double—she’d been bumped up from a fixed 8.9 percent rate to a "variable rate that equals the prime rate plus 6.9 percent"—or about 15.8 percent. Schantz, who says she’s “never late with payments,” is irate. The letter blamed rising interest rates across the economy for the decision.

Schantz isn’t the only American who has lately received Capital One’s letter. Blogs are teeming with postings from people complaining about sudden rate increases by the company. In a statement to NEWSWEEK, the McLean, Va.-based Capital One acknowledged that it had raised rates for “some” customers, citing “business and economic factors (a core one being rising interest rates)” and changes in the lending market.

For now, consumers can dump Capital One and move their balances to other credit cards with better rates—as Schantz has done. But because Capital One is the largest independent issuer of credit cards, its move may signal that similar rate increases are on the way from other credit-card providers. “It could definitely be a harbinger of things to come,” says Aaron Smith, a senior economist at Moody’s Economy.com. “They may have assumed more risk than other companies—but I would be very surprised if it was an isolated move.”

That raises an important question: is Cap One’s rate increase the start of a widening credit squeeze? If so, it would be a direct result of the home-mortgage crunch, currently roiling financial markets worldwide. “We’re not in the same world as we were five or six months ago,” says Keith Leggett, senior economist at the American Bankers Association. “There is a growing risk aversion among market participants.”

As home prices across the United States have stagnated or fallen and consumers have tapped out the equity in their homes, banks have gotten more cautious about lending and have tightened their standards for new mortgages and home-equity loans. As a result, more Americans are shifting debt onto credit cards. This week, the Federal Reserve said non-real estate consumer-credit usage rose at about twice the rate than economists had predicted for June. And revolving credit usage (which includes credit-card debt) was up by 8.7 percent at an annual rate for the month. That boost helped bring total consumer credit, both revolving and not revolving (like auto loans), to a record $2.459 trillion.

Meanwhile, continued concerns about a credit crunch in the stock markets may be putting pressure on credit-card companies to tighten standards and raise rates. (Wall Street fell sharply again on Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets.) The market “has changed the psychology of the situation,” says Smith. “Now they’re saying, ‘Oh my gosh, we’re going to get into the same trouble these mortgage companies are getting into, we’d better tighten standards too’.” He predicts that evidence of tightening—and a resulting increase in consumer interest rates—could show up as soon as next week, when the Federal Reserve releases its quarterly survey of loan officers.

A credit-card squeeze carries real risks for the U.S. economy overall. “The shift from home-equity borrowing to credit cards is quite costly,” says Smith. Not only are mortgage interest rates about half that of credit-card interest rates, but the interest paid on credit cards isn’t tax-deductible. Smith believes that already-strapped households with little or no savings to rely on will be faced with increased financial obligations that will eventually lead to slower growth in consumer spending. And with consumer spending accounting for about 72 percent of gross domestic product, any slowdown could have a big impact.

Americans are so tapped out financially that they may not be able to stop using plastic no matter how high rates get, says Christian Weller, an economist and senior fellow at the Center for American Progess. “I think credit-card usage could still go up even if rates go up,” says Weller. “The credit market right now is like a balloon that’s being squeezed on the mortgage side and expanding on the credit cards side,” he says.

Weller says he’s concerned that credit-card debt has risen dramatically over the past few months, even as growth in consumer spending has slowed. This, he says, is a sign that credit-card borrowing is being used to close a widening household budget gap—that cards are being used to fund housing, transportation and medical care. “I believe what we’re seeing is that consumers are borrowing out of necessity—we’re not talking about a flat-screen TV or iPods here.”

For customers who need access to credit but get knocked out of the prime credit-card market due to tightening standards, the only alternative to meet their expenses may be the subprime credit- card market, says Ellen Cannon, assistant managing editor at the financial research group Bankrate.com. And that could put them even deeper into trouble, she says. “What happens with the subprimes is that they’ll give you a $200 credit limit and then they charge you $59 initiation fee and an annual fee of $45. So by signing up, you can be $150 in the hole and your interest rate is 32 percent. It’s highway robbery.”

How long will it take Americans to dig themselves out of their credit hole? Years. “Debt will increase and consumption will weaken in the next year,” says Smith. “But there will come a point when people will either have maxed out their credit or they’ll see their credit rating starting to suffer, and that’s when many of them will decide to get their household balance sheets back in order—probably by sometime in early 2009.” Smith warns, however, that reversing a borrowing trend is “a slow process.” And that’s something anyone who’s ever tried to pay down a big credit-card bill knows firsthand.

http://www.msnbc.msn.com/id/20201030/site/newsweek/page/0/

Yes, there is car buying after bankruptcy

By Justin Harelik, Esq.
Bankrate.com

If you practice good financial habits and are willing to take some difficult steps, you will be able to repair your credit, and yes, you will be able to buy a car.

Here is a strategy that I teach my clients so that they can re-establish their credit and start positive, successful lives after bankruptcy.

Rebuilding credit

1. Join the Life After Bankruptcy Web site: Stephen Snyder started this company after he filed bankruptcy. It is informative and a valuable resource as your begin your financial life again.
www.lifeafterbankruptcy.com

2. Get credit: Make a list of, at most, 10 local banks and then call each one, tell them that you have filed bankruptcy, received your discharge and would like to apply for new credit. Ask if they could qualify you for an unsecured credit card. If not, ask if they can give you a secured credit card in which you put $500 into a savings account and have a credit card with a $500 limit.

3. Verify that the account will be reported to the credit agencies: The way to do this is to ask the company which credit agencies will report the credit line: Experian, Equifax and/or TransUnion. Then check your three credit reports two months later to verify.

4. Use it: Every month, use the card (even if only for one purchase) and pay the balance in full. If you need to carry a balance then try not to use the card again until the balance is paid in full.

5. Get more credit: Repeat the steps above until you have three credit cards that you can use and pay off each month.

Doing this will re-establish your credit history quickly and raise your score. Once a year, you can pull your own credit report to check and see how you’re doing.

Also, at any point in the process, you can buy a car. You may have to do a little detective work to find a lender, but it can be done.

Make a list of, at most, 10 car sellers in your area. Call each one and tell them that you have a discharge notice from your bankruptcy and that you would like to know if they give car loans after a bankruptcy. Make sure you get a firm "yes" or "no" before taking an application.

Make two copies of the discharge letter that you receive from the bankruptcy court. The discharge letter is that document that indicates you are free of debt. Keep a copy of this letter in your car’s glove compartment. This is necessary to show all future lenders that your bankruptcy case was discharged, making you eligible for post-bankruptcy loans. The other letter you should keep with your other bankruptcy files in a safe place.

Finally, remember that if your financial distress (like that of most people) was due to illness, divorce or loss of employment then you have nothing to be ashamed about. The bankruptcy laws are here to protect you while you get back on your feet. Follow the plan above and you will be able to repair your credit and buy a car — and faster than you might think.

Justin Harelik is a practicing attorney in Los Angeles.

http://biz.yahoo.com/brn/070703/22528.html?.v=1

Declaring Bankruptcy Can Improve Your Credit Score

By Aleksandra Todorova
SmartMoney.com

The decision of whether to file for bankruptcy protection is not an easy one. Among the numerous concerns, one that is typically front and center is the worry that your credit rating will be so damaged that securing a loan – even at a lousy rate – will be darn near impossible.

But here’s some surprising news: In many cases, the damage done to one’s credit score isn’t nearly as bad as expected. Over the long run, obtaining a score high enough to make you eligible for very competitive rates isn’t out of the question.

The Agenda: Debt

Part of the reason why your score isn’t likely to suffer all that much is that most folks seriously struggling with debt aren’t exactly maintaining a top-notch score to begin with. "In virtually every instance, the consumer will already have repayment problems such as late payments, very high balances, charged-off accounts or collection accounts," says Rod Griffin, a spokesman for Experian, one of the three major credit bureaus.

In light of this, some consumers may even see a slight boost in their credit scores after filing bankruptcy, according to John Ulzheimer, president of Credit.com Educational Services, a consumer credit education group. Why? To start with, your credit report is largely wiped clean when you declare bankruptcy. Your high balances are removed as are any late payments or records of unpaid debts. Instead, the accounts included in the bankruptcy will be marked as "Included in Chapter 7 Bankruptcy" or "Included in Chapter 13 Wage Earner Plan," depending on which type of bankruptcy you filed. Both types of bankruptcy affect your credit score in the same way, according to Ulzheimer. Granted, you aren’t likely to see a big jump – but if you’ve just been scraping by, your score isn’t likely to fall much further.

That said, a bankruptcy could help your score over the long term, as well. Here’s why: When calculating scores, the formulas developed by Fair Isaac (the company that calculates the most widely used credit score, known as the FICO score) are set up to grade someone’s credit standing as compared with that of consumers in a similar financial position. To do that, Fair Isaac divides consumers into 10 groups, using what it calls "score cards." It then ranks the consumers in each group based on the others in the group. One of these score cards is bankruptcy filers. (For competitive reasons, Fair Isaac doesn’t release what constitutes all 10 groups.)

In other words, when you file bankruptcy your score is determined based on how you do compared with other bankruptcy filers, explains Fair Isaac spokesman Craig Watts. The reason? Fair Isaac has found this to predict credit risk better. "It’s a much fairer comparison," he says. "You’re not compared with people with rosy, perfect reports."

As a result, credit scores can run the gamut among bankruptcy filers.
"In that population, you’ll find some consumers who have very good FICO scores, some who have very bad FICO scores, and in between," Watts says.
(Fair Isaac doesn’t have statistics on the average FICO score for bankruptcy filers.) Granted, you won’t be able to bring your score up to the perfect 850 as long as your bankruptcy stays in your report, but with good credit management after filing, a score in the 700s isn’t impossible.

Then again, your credit score alone shouldn’t affect whether or not you decide to file bankruptcy. "You have to be realistic about your ability to get back on your feet financially," says credit expert Gerri Detweiler, author of "The Ultimate Credit Handbook."

That said, if your debt payments are crushing you, bankruptcy will give you a much-needed fresh start. And with a few clever credit repair strategies, your score could be back in the 700s within two or three years.

Bouncing Back

Here’s how to raise your credit score as quickly as possible after declaring bankruptcy:

1. Damage control

Make sure all the accounts you included in your bankruptcy are listed as such, and show $0 balances if you filed Chapter 7, says Detweiler. If a creditor continues to report the account as delinquent – which they shouldn’t – your credit score would suffer.

2. Get new credit cards

That’s the most important step in your bankruptcy recovery, Detweiler says. If you can’t get approved for an unsecured credit card, start out with a secured card. With a secured card, you will make a deposit with the credit-card issuer, which will in essence be your credit limit.
Typically, after a year to 18 months of on-time payments, you could "graduate" to a regular, unsecured credit card.

3. Piggyback

If you have a trusted friend or relative, ask them to make you an authorized user on one of their credit cards. Your bankruptcy won’t affect your friend’s credit, but you’ll automatically get the account history for that card in your report.

4. Bigger loans

What about auto loans and mortgages? You can start shopping for auto loans as soon as a few months out of bankruptcy, says Steven Snyder, author of the book "Credit After Bankruptcy." Traditional banks are likely to turn you down, but the financing folks at the dealership may be more lenient, especially if they’re in a bind to meet sales quotas.
Mortgage lenders will want to see at least two years of good credit behavior, according to Snyder.

For more on credit repair after bankruptcy, click here www.lifeafterbankruptcy.com

URL for this article:
http://www.smartmoney.com/debt/advice/index.cfm?story=boostscore