According to the Wall Street Journal, personal bankruptcy filings are up 32% from 2008. Sometimes, your personal financial situation is so bad, bankruptcy is the only option. While bankruptcy may wipe your financial slate clean, unfortunately, it will also kill your credit score and stay on your credit report for at least 10 years.

While filing bankruptcy may hurt your credit for the first few years, you can take steps to rebuild your credit.

The first and most important thing to remember is to not to get back in a situation where you end up over your head in debt. I’m not saying that all bankruptcy filings are a result of irresponsibility. Bad things happen to good people. People lose jobs unexpectedly, people have health problems, people get divorced, etc. I will say it again, sometimes bad things happen to good people.

The second thing is to pay all bills on time. Even though your utility companies or cell phone companies don’t show up on your credit report, they will likely show up on your credit report if they go into default.

You will need to demonstrate to future creditors that have learned your lesson and you can be responsible. One way to build or rebuild your credit is to apply for a secured credit card. Secured credit cards work like regular credit cards except that your credit line is usually secured by a savings account that you maintain with the bank. Many of these cards don’t have a monthly and/or annual fee. You can find a list of prepaid cards here.

Building your credit score up will not happen overnight but with patience, time and responsible behavior, your credit score will improve.

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I haven't done a credit score checkup post in quite awhile. Although I check my credit reports monthly to make sure there are no errors, I haven't checked my credit scores since April and that was because I was looking to refinance my adjustable rate home loan. I wanted to make sure my scores were good enough to obtain the best interest rates available since I knew the decrease in my home value would be one of the factors hindering the loan approval.

One of my ongoing and not often mentioned financial goals is to get and maintain credit scores of 720 and above with all three credit bureaus. When I checked my scores in April, all three bureaus were showing scores over 720!!!

When I checked my scores last week, there was an unexplained drop in 2 of my scores. I know that my new home loan is showing up on my credit report now and new accounts usually drop your scores temporarily by a few points; but not over 30 points.

How are my scores looking right now?

Equifax

• 758 on 4/12/2009
• 765 on 9/3/2009
• I'm pretty happy with my Equifax score. Most lenders in my area pull Equifax.
  

TransUnion

• 734 on 4/12/2009
• 688 on 9/3/2009
• I don't know what happened here. A drop of over 40 points for a new home loan? I've been checking my credit report and there hasn't been any negative information added. I'll have to keep an eye on this.
  

Experian

• 721 on 4/12/2009
• 685 on 9/3/2009
• This is always the lowest score for me. I still don't understand the sudden decrease.
  

The highest FICO score you can obtain is 850 and anything over 720 is generally considered a good credit score.

How do you get and maintain a good credit score?

Timely Bill Payment. This is 35% of your credit score. Having a late payment reported can send your credit score into a downward spiral. A late payment can stay on your report for up to 7 years.

Credit Mix. This is 10% of your credit score. Having a good mix of installment loans, credit cards and mortgages is good for your credit score. This is really important if you have a short credit history. Obviously, you should not apply for new credit just to have different types of credit if you don't need it. This will actually hurt your credit in the short term.

Debt to Credit Ratio. This is 30% of your credit score. The closer you are to maxing out your amount of available credit, the more negative the impact to your credit score.

Length of Credit History. This is 15% of your credit score and is something that simply improves with age. The oldest credit line on my credit report is over 13 years old.

New Credit. This is 10% of your credit score. Every time you apply for new credit, the lender checks your credit score. This causes an "inquiry" on your credit report and can decrease your score 2-3 points. Multiple inquires in a short amount of time can also send your credit score into a downward spiral. Shopping for a mortgage or car loan is considered as one inquiry if done within a 30 day time period.

How do I check my credit reports?

I use Equifax Credit Watch Gold (affiliate) which tracks all 3 credit bureaus and alerts you to any changes within 24 hours.

Image Courtesy of ChicagoEye

One of my goals for 2008 was to get and maintain credit scores of 720 and above with all three credit bureaus. I'm still two-thirds of the way to my goal.

As I mentioned in prior posts, I am thinking about refinancing my home once I determine if I will stay in this house long enough to recoup the costs of the refinancing. Right now, interest rates are pretty low and I don't they will increase much anytime soon. With the credit crunch, my scores need to be as high as possible to meet stricter lending guidelines.

How are my scores looking right now?

Equifax

• 765 on 1/12/2008
• 738 on 4/12/2008
• 784 on 11/17/2008
• I'm pretty happy with my Equifax score. Most lenders in my area pull Equifax.
  

TransUnion

• 728 on 1/12/2008
• 734 on 4/12/2008
• 711 on 11/17/2008
• I don't know what happened here. A few weeks ago, this one dropped 20 points without any major changes in my credit file.
  

Experian

• 712 on 1/12/2008
• 700 on 4/12/2008
• 711 on 11/17/2008
• I can't get this to move much at all. 712 is the highest score I've seen with Experian since I've been tracking my credit score.
  

The highest Fico score you can obtain is 850 and anything over 720 is considered a good credit score.

How do you get and maintain a good credit score?

Timely Bill Payment. This is 35% of your credit score. Having a late payment reported can send your credit score into a downward spiral. A late payment can stay on your report for up to 7 years.

Credit Mix. This is 10% of your credit score. Having a good mix of installment loans, credit cards and mortgages is good for your credit score. This is really important if you have a short credit history. Obviously, you should not apply for new credit just to have different types of credit if you don't need it. This will actually hurt your credit in the short term.

Debt to Credit Ratio. This is 30% of your credit score. The closer you are to maxing out your amount of available credit, the more negative the impact to your credit score.

Length of Credit History. This is 15% of your credit score and is something that simply improves with age. The oldest credit line on my credit report is over 12 years old.

New Credit. This is 10% of your credit score. Every time you apply for new credit, the lender checks your credit score. This causes an "inquiry" on your credit report and can decrease your score 2-3 points. Multiple inquires in a short amount of time can also send your credit score into a downward spiral. Shopping for a mortgage or car loan is considered as one inquiry if done within a 30 day time period.

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I can't believe it is already September. This year has gone by so fast it almost seems like a blur. In a little less than four months, we'll be roaring into 2009. I guess we get so caught up in the daily hustle and bustle, the days and nights just pass us by and we don't take time to enjoy them. One of these days, I'll be out of debt and financially independent. I'll be able to take time to enjoy nice, relaxing days on the beach instead of spending my time stressing at work about things I have no control over.

In order for those dreams to become anywhere near a reality, I must get my finances in order. I feel that I am doing okay but things can always be better. I've set goals to plan and track my financial journey. At the end of 2007, I posted a list of financial goals I wanted to accomplish in 2008. My last update on the list of goals was back in April and I had not met any of the goals I'd previously set. Here is a recap of the goals and an update of the status:

• Increase Networth to $75,000. I actually exceeded this goal a couple of months ago and I've since increased the goal to $85,000. Depending on how things go for this month, I may increase the number a little more.
• Increase Freedom Account balance to $5000. This is the account that I use to save for minor unexpected expenses, insurance premiums, automobile maintenance and as backup funds to my rental property account. At last check, the balance is a little over $3000.
  
• Increase Rental Property Account balance to $1500. This is the account I use to cover rental property repairs. I've met this amount twice but I've had to use this account a couple of times this year to pay for repairs. Right now, the balance is just shy of $500.
  
• Decrease my non-mortgage debt to less than $40,000. Done!!! Paying off my car loan helped to get this down to $22,500 which is the balance of my consolidated student loans.
• Increase my credit scores to over 720 with each bureau. Done!! At last check, I had a 783 score with Equifax, 733 with Transunion and 721 with Experian.

I've added an additional goal to the list. I'm trying to minimize my expenses and keep my monthly outflows to less than $4000 per month. This number allows me to save over $1000 a month after all expenses.

How are you doing on your financial goals?

Related Posts:
Update on My Financial Goals
Twelve Year Car Loan
One Year Later - How Have My Finances Changed?

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One of the most important aspects of personal finance is having and maintaining good credit. Your credit is so important because not only does it affect the rates you pay on home loans and insurance but it also can affect whether you get a job. More and more employers these days are using credit to determine if you get that job you are applying for; especially if the job involves handling money or dealing with sensitive personal and financial information of others.

Most companies correlate a good credit history with your level of responsibility and financial character. A good credit score would indicate to a mortgage company that you will be likely to pay your monthly mortgage payment on time every month. A good credit score to an insurance company would indicate that you will be less likely to file numerous insurance claims. A good credit score would indicate to an employer that you will be more trustworthy, show up for work and less likely to do something that would not be against the rules. Usually this is a pretty good indicator but not always the case. Someone with a low credit score could be just as trustworthy as someone with a high credit score.

The Credit Score.

If you apply for a mortgage, credit card, loan or insurance, most lenders will check a three digit score called your FICO score. This score ranges from 300 - 850. Of course, higher scores are better with anything over 720 considered excellent. According to MyFico, most consumers fall in the range of 650-799. Consumers with higher scores will get much better interest rates than those with a lower score.

How much could you save on your home loan with different credit scores?

• 30 Year Fixed Rate $200,000 Mortgage in Georgia
• Rate w/ 720 credit score - 6.474% - Monthly Payment $1261 - Total Interest $253,589
• Rate w/ 620 credit score - 8.283% - Monthly Payment $1507 - Total Interest $342,583
• The 100 point credit score difference will cost an additional $246 a month and you will pay an additional $88,725.
• With the current credit crunch, it will be alot harder to get a mortgage with a 620 credit score!

How do you get and maintain a good credit score?

• Pay Bills on Time. This is 35% of your Fico score. Having just one late payment can send your score into a downward spiral. Once single late payment can stay on your report for 7 years.
• Good Mix of Credit. This is 10% of your credit score. Having a good mix of installment loans, credit cards and mortgages is good for your credit score. This is really important if you have a short credit history. Obviously, you should not apply for new credit just to have different types of credit if you don't need it. This will actually hurt your credit in the short term.
• Debt to Credit Ratio. This is 30% of your credit score. The closer you are to maxing out your amount of available credit, the more negative the impact to your credit score
• Length of credit history. This is 15% of your credit score and is something that simply improves with age. The oldest credit line on my credit report is over 12 years old.
• New Credit. This is 10% of your credit score. Every time you apply for new credit, the lender checks your credit score. This causes an "inquiry" on your credit report and can decrease your score 2-3 points. Multiple inquires in a short amount of time can also send your credit score into a downward spiral. Shopping for a mortgage or car loan is considered as one inquiry if done within a 30 day time period.

Using the above tips, you should see a significant increase in your credit score within 6-12 months, if not sooner. If you plan to make a major purchase within the next few months, start now to make sure you have the highest score you can. As seen in the example above, having a higher score can reduce the interest rate on your loan and save you money in the long run.

Related Posts:

Personal Finance - Back to Basics (Part 1)

Personal Finance - Back to Basics (Part 2)

Image Credit: Mene Tekel

I don't understand it. I know the world of credit scoring is confusing and hard to understand but this is crazy. I paid off my car loan last month and once they reported they payoff to the credit bureaus, my score actually dropped. I thought that my score would have gone through the roof once the debt was gone. Afterall, I am decreasing the total amount of debt that I owe. I thought the credit bureaus would look at this favorably and boost my credit score. Nope, didn't happen.

Here is what happened to my scores - listed by credit bureau:

Equifax: Score prior to car payoff - 769, score after payoff - 743
TransUnion: Score prior to car payoff - 743, score after payoff - 732
Experian: Score prior to car payoff - 732, score after payoff - 728

Ok, so what is the deal? I checked to make sure that Chase Auto Finance had marked the account correctly. They listed the account as paid in full with a zero balance which is how it should read. I haven't taken on any new debt at all. I haven't applied for any new credit so there are no new credit inquiries that could have pulled my score down.

I waited patiently thinking that maybe this was just a temporary drop. Here we are two weeks later and the scores are still the same! It's not a big deal as they are still pretty good scores and I don't plan to apply for any loans or additional credit cards. I just want to understand WHY?

Anyone else have this happen? If you are reading this and you have a firm grasp on how credit scoring works, please share your thoughts.

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One of my goals for 2008 was to increase my scores to over 720 with all three credit bureaus. Since the last update, I am still two-thirds of the way to my goal even though two of my scores have decreased for some unknown reason. Credit scoring is really weird!
I would like to get my credit scores as high as possible because I am thinking about refinancing my home. Interest rates are pretty low and I don't think they will decrease much at all.

Here are the latest scores from the three major credit bureaus.

Equifax

• 765 on 1/12/2008
• 738 on 4/12/2008
• Not sure why this one dropped. I have not been late on any payments, applied for new credit and my total debt has decreased since January.

TransUnion

• 728 on 1/12/2008
• 734 on 4/12/2008
• I thought this one would have been higher but at least it did increase slightly.

Experian

• 712 on 1/12/2008
• 700 on 4/12/2008
• This one has dropped too. Again, I haven't applied for any new credit, been late on any payments or increased my total debt.

How do you get and maintain a good credit score?

Paid all bills on time. This is 35% of your credit score. Having a late payment reported can send your credit score into a downward spiral. A late payment can stay on your report for up to 7 years.

Having a good mix of credit. This is 10% of your credit score. Having a good mix of installment loans, credit cards and mortgages is good for your credit score. This is really important if you have a short credit history. Obviously, you should not apply for new credit just to have different types of credit if you don't need it. This will actually hurt your credit in the short term.

Debt to Credit Ratio. This is 30% of your credit score. The closer you are to maxing out your amount of available credit, the more negative the impact to your credit score.

Length of credit history. This is 15% of your credit score and is something that simply improves with age. The oldest credit line on my credit report is over 12 years old.

New Credit. This is 10% of your credit score. Every time you apply for new credit, the lender checks your credit score. This causes an "inquiry" on your credit report and can decrease your score 2-3 points. Multiple inquires in a short amount of time can also send your credit score into a downward spiral. Shopping for a mortgage or car loan is considered as one inquiry if done within a 30 day time period.

Need to monitor your credit, try MyFico.com

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One of my 2008 financial goals is to have at least a 720 credit score with the 3 major credit bureaus. In checking my credit scores today, I am two-thirds of the way to my goal.

Equifax Score History:

• 694 on 11/14/2007
• 709 on 11/27/07
• 765 on 1/12/2008
• I'm pretty happy with this score as most creditors in my area pull Equifax.

TransUnion Score History:

• 707 on 11/14/2007
• 701 on 11/27/2007
• 728 on 1/12/2008

Experian Score History:

• 706 on 11/14/2007
• 706 on 11/27/2007
• 712 on 1/12/2008
• Not sure what the deal with Experian is. My score hardly ever changes and has been the slowest one to increase.

Once Experian finally catches up and my score shoots up over 720, I will have met one of my 2008 financial goals. I figure within two months, the score should be over my 720 target.

What have I done to increase my credit scores?

• Paid all my bills on time. This is 35% of your credit score. Having a late payment reported can send your credit score into a downward spiral. A late payment can stay on your report for up to 7 years.
• Having a good mix of credit. This is 10% of your credit score. Having a good mix of installment loans, credit cards and mortgages is good for your credit score. This is really important if you have a short credit history. Obviously, you should not apply for new credit just to have different types of credit if you don't need it. This will actually hurt your credit in the short term.
• Having a low amount of debt in relation to available credit. This is 30% of your credit score. The closer you are to maxing out your amount of available credit, the more negative the impact to your credit score. Paying off the remainder of my credit card debt definitely helped to improve my score.
• Length of credit history. This is 15% of your credit score and is something that simply improves with age. The oldest credit line on my credit report is over 12 years old.
• New Credit. This is 10% of your credit score. Every time you apply for new credit, the lender checks your credit score. This causes an "inquiry" on your credit report and can decrease your score 2-3 points. Multiple inquires in a short amount of time can also send your credit score into a downward spiral. Shopping for a mortgage or car loan is considered as one inquiry if done within a 30 day time period. I've only applied for credit one time in the past six months and that was when I applied for the Discover Business Card.

Using the above tips, you should see a significant increase in your credit score within 6-12 months. If you plan to make a major purchase within the next few months, start now to make sure you have the highest score you can. Having a higher score and improve your chances of loan approval and can reduce the interest rate on your loan and save you money in the long run.

After paying off the remainder of my credit card debt two weeks ago, I have been watching my credit scores to see the affect of reducing my debt by over $10,000. I use TrueCredit to monitor my credit reports and usually pull a new report every 2-3 days to check on any changes.

Here is a summary of how my scores have changed since 11/14/07.

• Transunion (11-14-07) = 707 Transunion (11-27-07) = 701 Not real sure why the score dropped by 6 points since my total debt load did not increase and there were no new inquiries.
• Equifax (11-14-07) = 694 Equifax (11-27-07) = 709 My score with Equifax went up 15 points and there are have been no major changes besides 2 old inquires dropped off my report. They are still reporting the balances on my credit cards that have been paid off. The balances should update on the first week in December and I expect a huge jump in my score.
• Experian (11-14-07) = 706 Experian (11-27-07) = 706 No change in my score here which makes sense since everything is still the same as it was 2 weeks ago.

It's funny how much your credit scores can change in such a short time. Once my report shows my credit card debt as paid off, I will be interested in my numbers then.

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I have been a member of Equifax Credit Watch and Score Power since 2004. They charge $7.95/month for the Score Watch and $9.95/month for Credit Watch Gold. The service works like this: if there is a change in my credit file or credit score, I get an text message on my cell phone and an email within 24 hours. I can also pull my Equifax credit report at any time. I'd been hearing alot about TrueCredit so I checked them out. I signed up thru Wal-Mart Financial Services which offered the service for $11.21/month. I saved over $5 a month and am able to get all 3 reports and scores instead of just Equifax.
My credit scores were as follows: TransUnion 690, Experian 698, Equifax 657. My goal is to get all three over 700.