Credit Repair After Bankruptcy | Improving Your Credit Score After Bankruptcy
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Credit Repair After Bankruptcy | Improving Your Credit Score After Bankruptcy
Although there is a big stigma attached to it, filing bankruptcy is one of the legitimate ways that is at one’s disposal to literally start over financially. You can get rid of substantial amounts of debt, freeing up some much needed cash flow. That money can in turn be used more wisely so that you can avoid falling into the same problems down the road.
Of course, this is easier said than done, and there’s the small matter that bankruptcy is the single worst thing that can happen to your credit score. Not only does a bankruptcy ruin your credit rating, but it also stays on your credit report for 10 years (other information on your report falls off after seven years). A low credit rating makes it very difficult to be approved for car loans, home loans, and even credit cards. Well to be totally honest, you technically can get those loans, but the interest rates will be very high; there’s also the option (that’s gaining in popularity) of using secured credit cards to repair your credit. Let’s not even talk about the credit card offers you will get right after getting discharged: you will pay through the nose for that “privilege”. But in any case it doesn’t hurt to be in the know if you want to repair your credit after getting your bankruptcy discharge.
Another reason to start the process as soon as possible is that if you ever again plan on applying for a job (a lot of them run credit checks), buying a home, buying a car, or even going on vacation and securing a rental car, you are going to need credit. Of course, you will have to be patient, because the improvement is not going to happen overnight, but nothing says that you can’t do your best to speed up the process. The following tips will put you on the right track:
Get your credit report and check it regularly
The very first thing you should do is pull a copy of your report from one of the credit bureaus to make sure all of the information on there is correct. Some people suggest getting all three copies because they differ and you want to get any errors fixed on all three. You’re entitled to one free credit report per credit bureau every twelve months, although the scores are never free and you have to pay to get them. Don’t believe the commercials, the advertised score is not free, it’s free when you agree to pay a monthly fee. Don’t ask us how that makes sense!
When reviewing your report make sure all of the creditors are reporting your information (including the bankruptcy) accurately, and if they are not you need to dispute this right away. Make sure the debts that were part of the bankruptcy are properly noted, usually with a “BK” notation. You want creditors to know that you no longer have those debts. If there are any discrepancies you will need to dispute them right away. Fill out the form that came with your report, make a copy for your records and mail it to the bureau through certified mail. They must verify that the information is correct and if they can’t they must remove it from your report. Only after you’ve thoroughly verified that all of the information is correct can you start working on rebuilding your score.
Now this where you need to make a judgment call. You can either get all three of your reports for free and then three to six months later purchase them to make sure everything has been correctly reported, or you can order them one at a time, at 4 month intervals, to monitor the changes.
Make a budget and stick to it
Now that you no longer have to make all those payments on your debts, it’s time to make a new a monthly budget. Make sure your expenses do not exceed your income. This is probably one of the most important steps, as it sets up the building blocks for your new money habits so you don’t get yourself right back in trouble.
Get new credit
It may be hard to get an unsecured credit card after filing for bankruptcy but as soon as you start getting positive information listed on your credit report, apply for a credit card and start using it moderately. By moderately we mean pay if off every month. A lot of people say that it’s best to try with a retail card, but if you want to make sure you’ll be approved, get a secured credit card (your credit limit will be equal to an amount you deposit at the bank). Use it and make sure you pay it on time, so that you start proving to lenders that you are capable of handling revolving credit (and possible higher debt loads in the future, like a car or home loan)
Taking out a small secured loan through your local credit union is another way to start re-establishing your credit after bankruptcy. Be sure to make your payments each month and on time. As an added bonus, if you have both revolving credit and installment loans, this improves what FICO calls your “credit mix” and bumps up your score.
Pay your bills on time
This can not be stressed enough: all your bills should be paid in time and in full. On-time payment history is the single biggest factor in raising your credit score, accounting for 35% of your score calculation. If you want to be absolutely sure that you won’t miss any payments, set up automatic payment plans because you (literally) can’t afford to have late payments showing up on your report. And if you have a student loan (those aren’t discharged in bankruptcy), be sure you pay on time. You are already considered an extremely risky borrower, so any indication that you are slipping into old patterns will not bode well for your credit score. You must pay on time and in full each month. All those on-time payments will ultimately raise your score and start making you look more attractive to creditors.
Don’t max out your credit cards.
If you cannot pay your credit cards in full, try your best not to exceed a balance that is more than 30 percent of your limit. Your balance-to-limit ratio (the amount of outstanding credit you have to available credit) is another big part of the credit score calculation.
There are no magical shortcuts, but the above tips may prove helpful. Once again, you will not fix your credit overnight, and you will need to be diligent and patient with the process. But with the right knowledge, and with better financial habits, you can once again have “good credit”, sooner than you thought you would.