Bankruptcy is one of the worst things you may do to lose trust of lenders. While it is a great relief for people who were struggling to meet their obligations, it does not help to obtain future financing at all. Bankruptcy on a credit report shows potential lenders that a borrower has once walked away from financial obligations causing lenders who loaned their money to suffer losses. Rebuilding a reputation after bankruptcy is a difficult, but feasible task, requiring time, effort, and patience. However, with proper approach it may help a borrower to access a full range of lending products once again.
Understanding the Process Is Important
To better see how post-bankruptcy lending works, it is important to take a look at your credit profile through the eyes of potential lenders. Banks are in business of loaning money and lending to them is a matter of statistics showing potential revenues and losses. It is quite obvious that lending institutions do want to maximize their earnings and are not eager to lose money. That is why a bankruptcy on your record is a stop factor to many lenders.
The good news is that your credit file is not the only thing factored in when underwriting a loan. Many lenders may loan money to people with recent bankruptcy on their record with less worries due to a couple of factors. First, recently discharged bankruptcy means that there are very few debts a borrowed would have to service, if any. Also, laws do not allow filing bankruptcy frequently. These two factors alone make people with bankruptcy on their record good candidates for short-term loans.
Stable job is another important underwriting factor. Proof of steady employment resulting in stable income means to lenders your ability to repay loan proceeded. In case of loan default a lender would have the opportunity to garnish your wages to recover the losses. Your clean slate after bankruptcy along with solid employment is a good money-making opportunity for many lenders, since they charge hefty interest on loans for people with bad credit. While this is no good news to you at all, meaning higher borrowing costs, it does allow you to borrow money to fund your life activities.
Cosigners and Collateral Are Great Bargaining Points
A high risk of default caused by negative credit history may be easily offset with presence of collateral. Many people still own a home or a car after filing a bankruptcy. Both of these are sufficient to give your lender an added piece of mind when it comes to minimizing risks of losses. Pledging collateral enables borrowers with worst credit scores possible to borrow money. Using a cosigner is another great way to improve your chances of getting a loan. When banks see a signature of a person with good history of payments on a loan application, they are more willing to lend money to you. Anybody could serve as a cosigner, as long as he or she has a good credit history and is willing and able to take over your payments should you fail to make them.
Recovering From Bankruptcy Is a Lengthy Process
Rebuilding credit after bankruptcy is a long way to go. Be prepared to make a lot of effort to show your current and potential lenders that you have learned your lesson of ruining your credit. No matter what the reason was for you to file bankruptcy, it is time now to start rebuilding your relationships with banks, slowly but surely. Making small steps and taking it slowly is the best recommendation. Looking back at the reasons that forced you to go bankrupt and reevaluating your past behavior is the best way to re-establish your credit, avoiding past mistakes.