If you decide to pay-off an old collection account, the “date last active” will change.  The “date last active” is one of many factors used to calculate your credit score. Let’s assume that you have a collection from a past-due medical bill with a “last active” date of 06/02, and a $550 balance.  Since this is an old, inactive account, its effect on your credit score is very minimal.  It’s probably only lowering your score slightly.

Recently active credit accounts play a larger role in your total credit score than very old accounts – even if they are collection items or judgments.  If you decide to pay-off the old collection account, you will bring the “date last active” to the current month.  Your new balance will display $0 as the amount owed – however, since it is a recently active collection item, it may affect your score negatively.  In some cases, a recently active collection account (with a zero balance) is more harmful to your credit score than an old collection item with a past-due balance.

Fair Isaac is the company that manages credit reporting and scoring.  This company claims that adjustments have been made to credit scoring (starting in 2008) that allow you to pay an old debt without any negative movement in your credit score.  Fair Isaac says this is true for lump sum payments only – not for a series of payments over time.  Fair Isaac’s claim is very controversial, and it may not be true for all credit accounts.  Thus, you could pay-off an old collection or judgment, and your credit score may decline.  Consult your credit counselor, financial advisor or attorney before paying-off any past-due accounts with very old “last active” dates.  Depending on the circumstances, it may be better to wait for old collections and judgments to fall-off your credit report.

Before you visit a car dealer for a car loan, be sure to review your credit report.  Make sure that all accounts that were included in your bankruptcy are showing as closed.  Check to see if there are any errors.  It’s common after a bankruptcy to see open accounts that should be closed.  If certain accounts are being inaccurately reported to the credit bureaus, it may be hurting your credit score.  Large errors on your credit report can prevent you from qualifying for a car loan.

After you’ve determined that your credit report is free of errors, review your budget and determine how much you can spend on a car.  Consider both the term of the loan (how long you will be making payments) and the total loan amount.  When you visit the car dealer and apply for financing, you will probably be asked about any past bankruptcies.  Be honest and explain why you filed for bankruptcy – and the steps you’ve taken to improve your finances.  Be sure to mention any improvements to your credit score.

For the best interest rate, consider using an online car loan lender.  Online lenders work with thousands of loans and can usually give you a better deal than a local car dealership can.  Once you are approved with an online car loan lender, they will send you a check for the total car purchase amount.  You will take this check with you when you visit local dealerships to shop for cars.  This check proves to the local dealerships that you have already been approved for a car loan.  Using these tips, you should be able to get approved for a car loan even with bad credit or a past bankruptcy.

Usually, it’s more challenging to re-establish credit after a Chapter 7 bankruptcy compared to a Chapter 13 bankruptcy.  Chapter 7 bankruptcy is the darkest mark you can have on your credit record.  In Chapter 7 bankruptcy, all your debts are discharged (with the exception of child support, alimony, and a handful of other debts that are not allowed to be discharged). This makes it extremely unlikely that you will qualify for a new loan or credit card for at least two years.  Fortunately, you can qualify for a federal student loan and other types of educational loans – even with your past bankruptcy.  This is because educational loan providers are prohibited from discriminating against students based on credit factors.

In a Chapter 13 bankruptcy, you will be making payments to your creditors according to the established repayment plan.  A Chapter 13 bankruptcy shows creditors that you are willing to pay-off your debts, rather than completely discharge them.  Creditors generally view Chapter 13 more positively, compared to Chapter 7 bankruptcy.  With a Chapter 13 bankruptcy, you may be able to obtain new credit within a year (at high interest rates).

Bankruptcy can also affect your ability to qualify for a home loan – but only temporarily.  You may be able to get a home loan beginning two years after a Chapter 7 bankruptcy has been discharged, and one year after filing a Chapter 13 bankruptcy.  Veterans’ Administration (VA) loans and FHA loans can be obtained as soon as one year after filing for either Chapter 7 or Chapter 13 bankruptcy.