Clients often call me months or years after their bankruptcies are finished with a version of the same complaint: “I just checked my credit report, and my [car loan, mortgage, etc.] shows a zero balance. Plus, the payments I’m making aren’t being shown on the report.”
Relax, I say.
First of all, this is correct credit reporting. After receiving a bankruptcy discharge, you have no personal obligation to make payments on a secured debt like a mortgage or car loan, so your balance really is “$0.00.” However, the lender still has a right to take back the collateral (foreclosure, repossession) if payments are not made, so debtors need to stay current on the payments if they want to keep the property.
This is done by forwarding voluntary payments to the lender. In the credit reporting industry, these are considered strictly voluntary, and don’t count as reportable payments toward a debtor’s credit score.
This drives some people crazy, and they call me, sometimes even willing to sigh a reaffirmation agreement on the loan years after the case is closed (which can’t be done, by the way).
Again I say, relax.
Consider that if the discharged debt were to be added back to your credit report, that would reduce you available debt-to-income ration for borrowing, which itself could lower your credit score.
A far better means for boosting credit after bankruptcy is through the use of secured credit card accounts. You establish a modest savings account with a bank ($500.00 works great for this), which holds the account as security for a credit line in the same amount, and issues a credit card to use it.
Buy a few things on credit (a few things! restrain yourself….), make the monthly payments on time, and your credit score will be on the rise again, without the risk of putting loads of old debt back on the books to your detriment.
You can read a little more about setting up secured credit cards by clicking here: https://www.magnifymoney.com/blog/building-credit/build-credit-with-10-a-month-on-a-secured-card714882391/ .
by Doug Beaton