It is not possible to quickly improve one’s credit score. You should beware of people claiming that they can do this—such promises are generally “too good to be true.” In the past, people have claimed that your credit can be quickly fixed by creating a new identity using a taxpayer identification number instead of a Social Security number or by paying unrelated people to list you as an authorized user on existing accounts with a good payment history. Such attempts are fraudulent and may result in substantial civil and criminal liability, especially if you obtain credit through such means and then default.
For example, presenting a credit application that does not disclose your liabilities may make the debt nondischargeable in bankruptcy. Presenting a credit application to a financial institution (directly or through a dealer or retailer) that is known to contain materially false information is generally criminal.
Also, creditors and the Fair Isaac Corporation (FICO) have adopted measures to catch such attempts, so they are not likely to succeed.
CAUTION
Closing an account doesn’t make it go away.
Generally, improving your credit scores takes time. Absent erroneous or outdated information on your credit report, the best way is to pay debts down regularly over time. Many banks offer payment reminders or automatic payments, in which you are either reminded to make a payment or the payment is made automatically. If you have multiple credit card accounts, pay down the ones with the highest annual percentage rate (APR) first while maintaining your other accounts in current status. Do not close accounts, including unused accounts, because owing the same amount of money but having fewer open accounts may actually lower a FICO score—higher utilization of accounts is a negative factor. However, do not open new credit card accounts that you do not need because lowering the average account age is a negative factor. Someone with no credit cards, for example, tends to be a higher risk than someone who has managed credit cards responsibly.
First, determine what expenses are essential, at least at some level, and which are not. Utility bills can be reduced, but the basic minimum should be treated as essential.
Try to pay at least the minimums on all of your credit cards. If that is not possible, and you expect the financial distress to be temporary, contact the creditors and negotiate terms. Particularly if the account has been in good standing for a long time, creditors are often willing to do this.
One reason creditors are willing to negotiate is that they do not want to “charge off” accounts if they can avoid doing so. Creditors that are public companies or insured financial institutions are subject to reporting requirements enforced by the Securities and Exchange Commission and banking regulators. Generally, federally insured financial institutions must remove (“charge off”) accounts from the asset side of their balance sheets when they are 120 days (closed-end or installment credit) or 180 days (open-end credit, such as credit cards) delinquent.
Generally, after filing either a Chapter 7 or a Chapter 13 bankruptcy, credit will not be readily available to you—at least at reasonable rates—for about two years.
After bankruptcy, make sure that your prebankruptcy debts—other than those that are reaffirmed—are reporting on your credit report as discharged, with a zero balance. This is how they are legally required to be reported, but sometimes they are not.
People sometimes refer to not “including” debts in a bankruptcy. There is no such thing. You are legally required to list all of your assets and debts on a bankruptcy petition and schedules. In a Chapter 7, all scheduled debts are discharged. If there are no assets, debts that are not scheduled may also be discharged, depending on the jurisdiction.
In some cases, a debt may be “reaffirmed.” In other cases, a creditor may permit you to continue making payments on a secured debt (car loan, home mortgage) without foreclosing or repossessing, even though your personal liability is extinguished. Consult a bankruptcy attorney before doing either.
TIP
Try to pay all of your postbankruptcy and reaffirmed debts on time. After a couple of years, your credit score will begin to recover.
After the bankruptcy, begin reestablishing your credit as soon as possible. One possibility is to obtain a secured credit card. This type of credit card typically includes a credit limit equal to an amount that you have deposited with the card issuer. Make sure the card issuer reports your payments to the credit bureaus.
Summary
Improving your credit score requires time and effort. There are no quick fixes.