How Build Your Credit Score After Bankruptcy

How to Build Your Credit Score After Bankruptcy

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3 Ways to Build Your Credit Score After Bankruptcy

Bankruptcy is often the result of an overwhelming amount of debt incurred that can not be repaid. Whether it’s caused by job loss, illness, overspending, or other life events resulting in financial hardship, filing for bankruptcy is a complicated process that should not be taken lightly. The impact that it has on your credit report and credit score can last up to ten years and can significantly affect applying for car loans, mortgages, and more. However, rebuilding credit after bankruptcy is not always impossible. It just takes time. While not a comprehensive list, here are three key ways to get back on track and start rebuilding credit after bankruptcy:

1.  Build Your Savings

The first way you can begin credit repair after bankruptcy is to start saving. Building a cash cushion helps to avoid relying too much on using your credit card for financial support when unexpected expenses arise. This may prevent a debt at the end of the month that you are unable to pay. Saving money is also a good way to pay your bills on time. Consider creating a budget to help set aside money needed each month for bill repayment.

Let’s say that after living expenses, transportation, and food, your budget leaves you with only $100 for the month. You know then that you should not incur or charge more than $100 worth of debt in order to pay your bill at the end of the month. If you stick to your budget, you’ll probably know how much your bill will be, and more importantly, you’ll have the funds to pay it on time. Having extra savings set aside will also help if unexpected expenses arise after your average monthly budget has been calculated.

When making a budget, it’s very important to strictly follow it. This is especially true when trying to rebuild credit after bankruptcy. Every cent counts and is another progressive step towards your goal.

2. Get a Credit Card

After building a budget and savings that you feel comfortable with, the next way that you can work towards rebuilding credit is by opening a credit card. This may feel counterintuitive to you after having just filed for bankruptcy. However, showing lenders that you are now responsible with your credit by paying your debt on time is a big next step in rebuilding. You may even be surprised to realize that receiving a new credit card offer isn’t as hard as you’d think it would be. 

In fact, offers usually begin reappearing within weeks of filing for bankruptcy. This is mostly due to the fact that you can only file for bankruptcy once every eight years. For creditors, the offer is practically risk-free. Any newly acquired debt must be paid. This means you need to be extra careful when choosing a credit card. Check for fees and rates to make sure you know what you’re getting into. Most importantly, do not take on more credit than you can handle. One credit card is a good start.

The type of credit card you choose is just as important. Secured credit cards are great for individuals who have recently filed for bankruptcy. Some banks have this as an option for people who are trying to rebuild their credit. To apply, find a bank that offers secured credit cards. Typically, you begin by depositing an amount of money as insurance against your lending.

For example, if an account’s eligible credit maximum is $1,000, you’d need to deposit $1,000 for the bank to hold in the event that you are not able to pay your debt. This does not work as a debit card because funds are not removed from the account as charges occur. Instead, the funds are simply used as a backup. Different banks will have different rules, rates, fees, and minimum and maximum deposits associated with their accounts. Choose a secured credit card that works best for you. Most importantly, be sure that the card reports payments to the major credit bureaus. Your hard work in reestablishing credit will go unnoticed if it’s never reported.

3. Pay Your Bills on Time

Another way that may help rebuild credit is to pay your debt in full and on time. Even if this is not usually your strong point, your new savings and secured credit card may help establish healthy habits in handling your bills. This is one of the most sure ways to begin rebuilding credit after bankruptcy because a large portion of your credit score depends upon paying your bills on time. By paying your debt, you’re proving to lenders that you are responsible with credit. 

Another way that may help rebuild credit is to pay your debt in full and on time. Even if this is not usually your strong point, your new savings and secured credit card may help establish healthy habits in handling your bills. This is one of the most sure ways to begin rebuilding credit after bankruptcy because a large portion of your credit score depends upon paying your bills on time. By paying your debt, you’re proving to lenders that you are responsible with credit.

Ideally, you should pay your full statement balance every month to avoid interest. However, if this can’t be done, at the very least pay the minimum amount due. While not the best option, this will help to avoid late fees and additional negative impacts on your credit.

Rebuilding credit after bankruptcy is no easy task. It takes patience and persistence with a plan that prepares for the next three to five years. While building a savings, watching what you spend, and paying your bills on time will help, your credit improvement will ultimately depend on your commitment to implementing healthier habits into your financial life.

 

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