A bankruptcy is a chance for a fresh start, especially a chapter 7. Hard working, honest people, who fall on hard times, use a bankruptcy to reorganize their lives and make peace with creditors. It is not for just getting away with not paying bills. Therefore, everyone can rebuild their credit after bankruptcy.
Regardless, a bankruptcy will stay on your credit report for 10 years, and helps inform a lender's decision when granting future credit. If you immediately go out applying for new loans and credit cards, expect a denial. You will need to rebuild the confidence of banks. Of course, this is possible, but it takes some hard work and effort.
There is no way to sugarcoat that fact that a bankruptcy will negatively affect your credit score. It will impact your ability to get a car loan or mortgage and, even if approved, it will influence the interest rate charged. A bankruptcy is a red flag to banks and other lenders. However, if you follow this brief guide to rebuilding your credit after bankruptcy, over time you will restore their trust.
- Examine Your Credit Report. - When your bankruptcy is complete, the creditors are responsible for changing the status of any balance reported. This can take up to 90 days. However, after a reasonable time, reporting must be correct. Request copies of your report from each credit bureau and dispute any errors.
- Open a Savings Account. - Having a savings account is a sign of financial health. If you do not have an account open one. It is a good idea to budget 10 percent of your income for savings. Nonetheless, any regular deposit into a savings account is better than nothing.
- Apply for Secured Credit. - The first attempt at applying for credit comes from secured credit cards and loans. Banks have offers that give you a line a credit equal to a deposit they hold. So, if you deposit $500, they will give you a credit card with $500 in available credit. You can get your deposit back only by closing the account or upgrading to unsecured credit.
- Pay Accounts Better Than Terms - Creat good financial habits starting with paying more than the minimum payment required. However, do not pay off credit cards every month. You need a good payment history, but paying in full every month may not be reported to the credit bureaus.
- Apply for Unsecured Credit - After at least a year of using secured credit, start applying for unsecured credit. Use both credit cards and loans. Your credit score improves when you use different types of credit. It is best to use banks and financial institutions you already have a relationship with.
- Keep an Eye on Your Credit Report. - Of course, you want to ensure the credit you are building is reported correctly. Apart from that, you need to check debt discharged in a bankruptcy does not reappear. Debt buyers purchase bad debt from creditors for pennies on the dollar, hoping to make a profit. Sometimes, discharged debt is included in the data files. Dispute these reportings immediately.
Do you have any questions? What haven’t we covered that is important to you? If you would like to talk more about rebuilding credit after bankruptcy, or need more information, please contact us.