After filing for bankruptcy, you will need to begin rebuilding your credit. It can feel like a huge task and may take many months, but it is possible to repair your credit after bankruptcy. Learn what you can do to repair your credit, and start regaining control of your finances today.
Learn About Your Current Borrower Risk
After you file a Chapter 7 bankruptcy, you will have a clean financial slate, but your credit score may be very low. It is possible to raise your score again, but it will take careful planning an understanding of your financial standing with lenders. You bankruptcy will remain on your credit report for 10 years, but its impact will become less over time.
Once you have filed for bankruptcy, you have discharged a considerable portion of your debt and lowered your debt-to-income ratio. This can ease your debt burden and make you appear to be a more attractive borrower. You also will not be able to declare bankruptcy for another 8 years, so lenders may be more willing to work with you.
Create a Budget
In your pre-discharge credit counseling, you should have received information about creating and following a budget. If not, seek help from a non-profit credit counseling agency, or look for online resources to help you get started. A budget can help you better understand your expenses and can help you create your plan for repairing your credit.
When you develop your budget, be sure to include a plan for building savings. Even a small amount of savings can help you avoid going in to debt over unexpected expenses. Your savings can be an important tool to help you increase your credit score and your financial independence.
Plan Your Credit Building Strategy
You want to rebuild your credit, which can be difficult with a bankruptcy dragging your credit score down. It isn’t impossible to raise your score, but you should prepare a strategy before taking any actions that might actually hurt it.
Assess Your Credit
In order to create a plan, you need to know what your current credit standing is. Your credit report isn’t wiped clean by a Chapter 7 bankruptcy, even if your debt is. It may be a little painful, but you can start by checking your annual credit reports. Check them over closely for errors that may be impacting your score. If you find them, be sure to dispute them and have them corrected.
Check Your Score
Your score is calculated using the information in your credit reports, and this number can greatly affect how lenders treat you. You can obtain a free credit score from some personal finance sites, but you can also see if your credit card issuer will provide your score. If a website asks for payment information to find your score, you should look for a different site. Reputable sites shouldn’t charge you to find your credit score.
Try to learn what credit reports and scores will matter to lenders, and focus on cleaning up that particular type. Track one type from month to month to give you an accurate view of your progress as you improve your score.
Restore Your Credit with the Right Product
Restoring your credit will require you to use it responsibly, but it can be a challenge to find a lender who will work with you after bankruptcy. Luckily, there are several ways of building credit that are much more accessible to individuals who have filed for bankruptcy. These can help you restore your financial profile.
- Secured loan: Credit unions and community banks are the most likely to offer this option. In a secured loan, you may borrow against money you already have on deposit, or the bank may place the loan amount in an account and release the money once you have made the necessary payments. You won’t be able to access the money in either case until you have paid off the loan.
- Secured credit card: This type of credit card is backed by an amount that you pay upfront. You are able to borrow against this amount, and the bank will report your payment activity and credit use activity to credit bureaus. Often, community banks or credit unions will be more lenient with poor credit history, but it is possible to be rejected for a secured credit card. You also should plan to use this card for the short term, as they can have high interest rates and annual fees.
- Co-signed credit card or loan: A friend or family member with good credit can co-sign for a credit card or loan. It is a serious undertaking, however, since the co-signer will be expected to pay the full amount if you do not. They also are risking their credit reputation and will have a decreased amount for personal borrowing due to the additional debt obligation. Co-signed debt can damage relationships, so it is important to review your other options first.
Once you have secured a line of credit with a lender, it is important to uphold your end of the deal. Be sure to make your payments on time and try to refrain from using a large amount of your available credit. It is recommended that you never use more than 30% of your available credit. This will demonstrate responsible credit usage and can help you increase your credit score more quickly.
As you rebuild your credit, it is highly important to prove that you deserve to be trusted with credit once more. Try to avoid late payments or stretching beyond what you are able to pay off. It can be a challenge to do so, but when your credit score finally shows that you are a low risk borrower, it will be worth it.
Filing for bankruptcy is never an easy choice. Our South Florida bankruptcy attorneys can help you. Our team at Pazos Law Group offers compassionate, effective legal representation to our clients. Contact our offices today at (954) 719-5557.