You can still get loans with a bankruptcy on your credit report, but it's a lot tougher: Lenders know you blew off some of your debts and that makes them cautious. It's often easier to get a home equity line of credit than a new credit card because you're pledging your house as collateral. HELOC rates are lower than other consumer loans, and you don't have to borrow any money until you need it. Most lenders prefer that the total value of your HELOC and your mortgage amount to no more than 80 percent of the value of your house.
Order free credit reports via the Annual Credit Report website. Bankruptcy can drop your credit score by 100 points -- the exact effect depends on your overall credit history -- so you don't want false information on the report making it even harder to get a HELOC. Check for inaccuracies, such as accounts you paid off despite the bankruptcy, and contact the credit bureaus to fix them.
Talk to two or three lenders about the interest rate, fees and other terms they're willing to offer you. Among the things you need to find out are whether a lender requires a minimum withdrawal amount rather than letting you wait to tap your line of credit. Ask how long you'll be able to draw on your HELOC and how long you'll have to pay back what you borrow.
Review the lenders' terms, fees and rates and decide which loan is best for you. The Federal Truth in Lending Act requires lenders give you information about HELOCs and other loans in a standardized format, which makes it easier to compare them.
Apply to the best lender for a loan. You'll have to go through many of the same steps as when you took out your mortgage, such as getting the house appraised and proving you have the income to pay the loan back. If the lender accepts you, you pay closing costs and get your HELOC; if not, start over with your second-choice lender.
- If 10 years have passed since the bankruptcy, check your credit reports to make sure the bureaus have removed the bankruptcy from your file, as they're required to by law.
- HELOCs offer variable interest rates. When comparing loan offers, find out how high each HELOC can rise. Then figure out if you'd run into financial trouble if it did get that high.
- Pay to get your credit score from a major credit bureau such as Equifax, TransUnion or Experian. Scores range from 300 to 850, and if yours falls below 640, you're considered a sub-prime borrower. That means higher rates compared to what someone with a 700 score will receive if he applies for a HELOC.
- If you can't find an affordable HELOC, rebuild your credit and then try again. Regular, on-time payments on all your bills will go a long way to restoring your credit rating, and with many of your debts discharged in bankruptcy, you should have more money with which to pay bills. Taking out a credit card secured by your bank account is another way to start re-establishing your creditworthiness.
- A HELOC offers better rates than credit cards or other consumer loans, but there's a catch: If you can't pay the loan, the lender can foreclose on your house. If you haven't beaten the financial problems that steered you into bankruptcy in the first place, you may not be able to pay off the HELOC any more than you could handle your old debts.