While it may take several years to completely recover from personal bankruptcy, you can start rebuilding your credit much sooner than you may think. Depending on the type of bankruptcy, it may stay on your credit report for up to 10 years. And did you know that less than 10% of first-time filers will do it again? To keep this from happening and to start building your credit after bankruptcy, here are five general steps to follow.
1. Examine Your Finances
Before working on your credit, it's vital that you first ensure the financial habits or circumstances that led to your bankruptcy have been resolved. Above all else, it's a good idea for your living expenses to be below your net income. Late payments on monthly bills like your phone or utilities can affect your credit score. Before making any purchase, consider whether you really need it, if the item may cost less somewhere else and what you may have to give up to afford it. If income is an issue, consider taking on a part-time or additional job.
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2. Review Your Credit Report
Get a copy of your free annual credit report and review it carefully to ensure that all of the debts that were settled in the bankruptcy are reported correctly. After the bankruptcy has been discharged, those debts may say that you have a zero balance, or the debt has been discharged or that it was included in the bankruptcy. Discharged debts should no longer be reported as outstanding, late, delinquent or having a balance. Contact the lender if any of your debts have been misreported.
3. Build Your Savings
Set aside a percentage of your income each month to put into savings. This will give you a financial cushion in case of an emergency. Additionally, having savings can help in the future when a lender is deciding whether or not to give you a loan. If money is tight, saving even a small portion of your income is better than not saving anything at all, and you can increase the percentage that you save over time.
4. Get Help if You Need It
If you’re not sure you have the discipline to create a budget and keep with it, consider working with a credit counseling service. Be aware, however, that many organizations charge fees. The FTC recommends finding a service that offers in-person counseling for free or for a nominal cost. Don't use any service that claims they can remove your bankruptcy from your credit report.
5. Apply for a Secured Credit Card
After a bankruptcy, it may be some time before you are eligible for a credit card. However, once your bankruptcy is discharged, you may be eligible for a secured credit card. These work just like a regular credit card, except you must first deposit money into them. After putting down a deposit (like $500), you can then use the card for up to that amount. Most banks issuing secured credit cards report your payments as they would any other credit card. As a result, timely monthly payments could help rebuild your credit rating so that you may qualify for a regular credit card sooner rather than later.