A bankruptcy is usually discharged after 12 months but generally stays on your credit file for 6 years. You cannot get credit until you are discharged. After that, you will probably find yourself in a credit twilight zone for another couple of years. From year four, you can normally start to get credit but you can expect the process to be more challenging. Here are some tips to help.
Keep in mind that bankruptcy may never really go away
After 6 years, your bankruptcy will be removed from your credit file. There is, however, nothing to stop lenders from explicitly asking about it during the loan-application process. If they do, then answer truthfully. Getting caught in a lie could have very serious consequences.
Remember lenders are in business to make money and that means they need to lend. After you’re discharged, your bankruptcy will be just one of a range of factors they will consider. The more time passes, the less important it will usually become. What’s more, you can and should do your best to offset the negative of your bankruptcy with other positive factors.
Work on your credit score
This is standard advice for anyone looking to take on credit, especially a significant loan such as a mortgage. It’s particularly important for anyone with a bankruptcy in their history, even if it’s come off their credit file.
As you’ll have worked out, it’s a whole lot quicker and easier to destroy a credit record than it is to build it up again. Building up a credit record takes time as well as strategy. Ironically, money can help. For example, if you sign up for a credit-repair credit card, you may be able to speed up the process of getting recognized as credit-worthy again.
Credit-repair products tend to be expensive so watch your results carefully. As soon as you see your credit record starting to move into more reasonable territory, try to get a better product. Then keep using it, responsibly, to continue the good work. While you are doing this, make sure you practice impeccable financial management in all areas of your life.
Try to keep a stable employment record
This can be a tricky one and it’s not always within your control. Ideally, however, you’d aim to keep a stable employment record. Remember that, at the end of the day, lenders want to know that you can and will pay back their money (with interest). Having a stable employment track record can be very reassuring. If this is a concern for you, then consider starting a side-hustle you could convert into a liveable income if the need arose.
Put together the best deposit you can manage
Again, this is standard advice for anyone looking to buy a home. It’s particularly important for discharged bankrupts. You can generally assume that potential lenders are going to want to see a large deposit. In fact, this is likely to be a particular consideration for the immediate future as lenders have to factor in the possibility of house-price stagnation or even falls.
Being able to put together a large deposit also shows lenders that you have managed your finances well since your bankruptcy. This piles on the reassurance.
Use a mortgage broker
There are two good reasons for using a mortgage broker. First of all, it can save you a whole lot of time, hassle and frustration trying to find deals for which you have a hope of qualifying. Secondly, it can help get you “over the edge” if you’re a borderline candidate (which is highly likely).
Because mortgage brokers work in the industry, they often develop knowledge of lenders. As a minimum, this can help them guide you through the application process. You may even find that they have “backdoors” into companies which they can use to support a “just passable” application.
For help or advice please contact us.