Rebuilding credit after bankruptcy is best accomplished by establishing new unsecured credit and maintaining a good payment history. I get asked all the time by clients, usually after a case is discharged, to reaffirm their mortgage. Professionally I do not recommend reaffirmation on mortgages for many reasons, the single most important reason is signing a reaffirmation agreement binds the debtor again to the debt. Even after discharge (and without a reaffirmation in place) the debtor’s property is still bound by the mortgage (lien) but the debtor is not personally liable for the debt. That means if the debtor surrender the property or walk away from the house the only thing the mortgage company could do is foreclose its lien. The mortgage company could not hold the debtor responsible for a deficiency because the debtor received a personal discharge of the debt obligation. Besides, speaking in terms of attempting to rebuild credit, even though a mortgage is one of the big ticket items in our budgets, it does not improve your score as much as you might think because FICO scores treat houses and cars as necessities and the weight put towards paying a mortgage current does not significantly increase one’s credit score. However, the reverse is not true. Failure to pay a reaffirmed mortgage or car loan can be devastating on credit scores. The risk is not worth the exchange for the small benefit.
A debtor is better off getting small unsecured credit cards post-discharge. But a word of warning, be careful, if a debtor exceeds more than half of the available credit at any one time then the credit score will be damaged. For example, if a debtor got approved for a $500.00 credit limit and used over $250.00 each month (even if paid it off every month) then FICO sees that as being irresponsible with the credit and will ding the score for the overuse.
The best thing I can suggest is educate yourself on the ways FICO calculates scores and guard the newly found credit so you can avoid some of the pitfalls that actually damage credit scores. ”
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