In case you’ve filed for bankruptcy, you may wonder what your credit score will be when it comes time to apply for a loan or open a new account. While most people who file for personal bankruptcy do not have credit scores affected by their filing, some types of bankruptcy can negatively impact your FICO score.
If you’re in the middle of bankruptcy, it’s essential to understand that it is possible to rebuild your credit after filing. The key is to take the right actions and avoid mistakes. While rebuilding your credit after filing for personal bankruptcy is possible, it requires some work. Here are seven ways to rebuild your credit after bankruptcy:
Table of Contents
1. Avoid Unnecessary Use of Credit Cards
You may think you can use all the credit cards you want because you have been discharged from personal bankruptcy and are in good standing with the courts. However, creditors still want proof that you can repay them on time and in full. Thus, if you have any open accounts with high balances and no payments made, those accounts will remain open indefinitely until they are paid off in full or closed entirely by the lender.
Avoid unnecessary use of credit cards. If you have a credit card, don’t use it for anything other than paying the minimum balance every month. If you have a credit card with an annual fee, cancel it immediately. This will help keep your credit score from falling further and will also save you money in interest fees.
2. Check All Credit Reports
Check your credit report for errors caused by applying for new accounts or taking out loans during bankruptcy proceedings. You may have missed several accounts before bankruptcy that have since been closed or consolidated into one account with fewer payments over time (such as an auto loan).
Checking your credit report regularly is essential to keep up with your finances and catch any errors affecting your score. These errors can lower your score and make it harder for lenders to believe that you will handle your debts responsibly in the future.
Make sure that all of your accounts are correct and up-to-date. Also, make sure that there are no unauthorized accounts on your report. If there are any issues with any account, contact the company and ask them to remove them from your reports.
3. Monitor Your Credit Score
Your credit score is like a report card on your financial health as far as lenders are concerned. It tells them about your history regarding paying bills on time and in full, so they can establish whether or not they should provide you with new loans or consider extending current ones when it comes time for renewal.
Monitoring your credit score is essential because it helps determine how much interest you pay on other loans or if you qualify for new ones. You should check monthly and when applying for new loans or applications such as car loans or mortgages. When checking, look at personal and business accounts to see how they trend over time.
4. Practice Responsible Credit Habits
The best way to rebuild your credit after bankruptcy is by taking control of your finances and paying off debts over time. If you’re struggling with high-interest debt, such as a car loan or student loan, paying it off early can significantly affect how much interest you pay. A credit repair company will greatly help you come up with a responsible credit habit. Check over here the best credit repair companies.
Consider getting a secured credit card if you’re looking for an option to build up a good amount of credit while still controlling your spending. A secured credit card requires that you put down a deposit — usually around $200 — before you can use it. Once the balance reaches zero, the deposit will be returned to your account or used for another purpose (such as paying down other debts).
5.Get a Secured Credit Card
Rebuilding your credit as soon as you can after declaring bankruptcy is critical. Obtaining a secured credit card is one way to do this. You must deposit into the account with a secured card and make a monthly repayment.
This card type limits your borrowing power but allows you to build positive account history. The cards are safer than loans and can help rebuild your credit while building your savings.
6.Consider A Credit-Builder Loan
Credit-builder loans are similar to secured cards, except they offer lower rates and terms than other unsecured loans. They work well for people who want to quickly get their credit scores back up and running to qualify for more lucrative credit options, such as mortgage or business loans.
You might also get a secured loan, where you borrow against the funds in your savings account, depending on your bank. Like typical loans, the financial institution records the repayment activities of credit-builder loans to the main credit bureaus, which can raise your credit score over time.
7.Consider Having a Co-signer
A co-signer can help you qualify if you are having trouble getting approved for a loan or rental agreement after declaring bankruptcy. A co-signer guarantees repayment of a debt if you, the principal borrower, cannot. The co-signer will be liable for the unpaid loan sum if you default on your payments, even if they have no claim to the loan funds or the funded property. Likewise, if you skip payments or default, it will also hurt their credit score.
For these reasons, think carefully about who you ask to be your co-signer and show patience if they say no. Ask a friend or relative who is financially secure to serve as a co-signer, then offer an easy exit. Just because someone can act as a co-signer doesn’t mean she will be willing to do so.
It’s critical to understand that filing for bankruptcy does not grant you a fresh start; instead, it gives you another chance. Avoid wasting it. Your credit score will start to reflect your financial maturity if you can show that you’ve learnt a valuable lesson.
Remember that you have the right to try again if you fail. You can recover from bankruptcy and find success again. It doesn’t have to be the end for you.