Dear Liz: In my late teens, I bought a fairly new race car despite my minimum wage job. I soon realized that car payments and insurance premiums would require more than what I was being paid. A friend suggested that I should declare bankruptcy and let the bank take the car away. I am not blaming anyone and should have done my research. Now it has been almost 10 years and I am making close to $60,000. I have always paid my bills on time since the bankruptcy, but the bankruptcy remains on my credit report until July 2011. I would like to buy a house soon, but I wanted to start looking now. Even though it’s been 10 years, I worry the bankruptcy is going to cost me higher rates and a bigger down payment. Should I wait until August to start applying for a home loan?
Answer: If you’ve been paying your bills on time since the bankruptcy and have reestablished credit, much of the effect of your filing should have been erased by now. Where you might be in trouble is if you didn’t reestablish credit and instead have paid in cash all these years. Then there would be little new, positive information to offset your mistake.
Before you apply for any major loan, you should see where you stand with lenders, and that requires a peek at your FICO credit scores. You can buy two of your three FICOs at MyFico.com for $19.95 each. (Your third FICO score is not available because one of the credit bureaus, Experian, no longer sells FICOs to consumers although it continues to sell them to lenders.)
Checking your own scores does not hurt your credit rating, and it’s an essential step so you know what you’re likely to face when you start shopping for a loan. Although the picture you’ll get is somewhat incomplete, since you can’t see your Experian FICO, you’ll have at least some idea of whether you’ll pay a higher interest rate. Charts at MyFico.com can let you know what interest rate to expect on a mortgage given your scores. A loan professional can give you an idea of how big a down payment you’re likely to need.