Bankruptcy can be a daunting experience for many. Although it may seem irrevocable, getting your credit score back to normal is not impossible.
Rebuilding credit after bankruptcy is a task that needs a little – patience and discipline.
The excellent part about bankruptcy? It provides you with a clean slate to streamline your finances and rebuild your credit score!
Here you will find a complete guide to build your credit after bankruptcy, from monitoring finances to fixing loopholes that cause this snowball effect.
Don’t worry. It is easier than it sounds!
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Things To Avoid When Rebuilding Your Credit After Bankruptcy
Initially, when it comes to rebuilding your credit after bankruptcy, you need to carry a good credit score for over a year. In addition, you also need to showcase reliability and consistency.
Constant changes in jobs might worry the lenders into not giving you any loans.
It might scare your employer away and even some insurance companies.
On the contrary, if you have a consistent job. Let’s say, for, over a year, it shows responsibility and commitment.
As a result, it makes you more reliable in terms of paying off your loans punctually.
Taking Incorrect Financial Decisions
Similarly, when you are trying to build your credit after bankruptcy, making incorrect financial decisions can wedge you deeper into the puddles of debt.
Managing your finances is key to a good credit score. Take charge of your account. Make sure you know how to differentiate between variable, fixed, and irregular expenses.
For your understanding:
- Fixed variables include your rent money and loan payments that are unavoidable and can be calculated
- Variable expenses include food and other expenses that can fluctuate
- Irregular expenses arise according to need and cannot be predicted easily, such as medical or accidental expenses
Consequently, this is where your tendencies to overspend become a deciding factor for rebuilding a better credit score after bankruptcy.
Credit Repair Agencies
Instead of paying hefty amounts to these agencies for doing the same things you can do, invest this fund into a savings account.
Yes, what they do is efficient, but it comes with a heavy price. So rather than entrusting your credit score to them, you can rebuild your credit score by doing what any average person needs to do.
Besides, they can not remove accurate negative reporting from your report.
Fortunately, if you follow the steps in this article correctly, you can improve your credit score with ease and at absolutely no cost.
Applying for Numerous Loans
To rebuild credit after bankruptcy, it might not be a good idea to apply for an array of loans immediately.
Especially if any of them are refused, it makes other lenders wary of providing you with a loan.
If you have applied for a student loan, establishing a good score can increase your chances of getting bigger loans such as a mortgage or a car loan with lower interest rates.
A better counter would be to focus on lifting your existing debts in the initial six months of your bankruptcy.
Be On Top Of Your Credit Score!
When it comes to fixing your credit score, ignorance is not bliss. Get familiar with annual and weekly reports on Annualcreditreport.com.
Nevertheless, you are entitled to get one annual report. Here you can access free copies of your credit report, weekly till April, 20th 2022.
Knowing what makes your credit score is crucial. It helps you understand what you need to avoid and what you need to do more to improve your credit score.
Credit reports can also provide you with details of inaccurate information and public records. In addition, you can dispute any errors to credit bureaus and have your account updated.
New Budget – New Credit Score
Perhaps the most challenging yet crucial part of post-bankruptcy is building your credit. Getting a credit-builder loan or a secured credit card can pave your way into improving your credit score and can get you an unsecured card.
These are low-risk and amongst the fastest methods to rebuild your credit after bankruptcy. In addition, these types of loans are usually of smaller amounts.
This amount can be deposited into your account. While the lender keeps the money, you can make payments off of your interest. When the loan is paid, the money is released to you.
In contrast, a secured credit card requires a deposit which usually equates to your credit limit. Given you make punctual payments, the deposit is later returned to you.
If you do not make timely payments, the card issuer will use your deposit to recover these payments.
You get your money back through these methods. Moreover, these payments are reported to the credit bureau, and you can have positive marks on your credit report.
Win-win for you and the lender!
However, these types of loans and cards come with higher interest rates and restrictions.
If you do not make hefty payments and pay your balance on time, your credit score will improve significantly.
Slowly but surely, you will get a regular unsecured card; when you do, make sure you keep the balance low and pay it off on time, monthly.
Slow And Steady Wins The Race
Have you heard of that phrase before? Unfortunately, building a good credit score after bankruptcy is not for people looking for instant gratification.
You can follow these steps to rebuild your credit after bankruptcy:
Obtaining a Co-Signer
Understandably, getting loans or better cards after bankruptcy is not an easy feat. However, obtaining a co-signer will improve your chances of qualifying for loans.
It is recommended that you choose a reliable person with a good credit score to help you.
In case you miss even one payment of these loans, the signee is legally bound to pay them off, and it will show on both of your credit reports, respectively.
Be considerate if the consignee has cold feet and refuses to back you up. Choose a family member or a financially stable friend to provide you with a helping hand and make sure to maintain a near-perfect credit score.
Becoming an Authorized User
If you have difficulty obtaining a co-signer or a credit card, it might be easier for you to become an authorized user on someone else’s card.
Through this, you can use the card to make payments and avail all benefits. The card is in your name, and the account is linked to a borrower’s account.
Indeed, they would have to make timely payments at the end of the month and clear out any negative balance.
Make sure to choose a responsible person, more importantly, a person with accountability to avoid negative reporting.
Assess The Type Of Your Bankruptcy
If you file for bankruptcy, the most common being “Chapter 7 bankruptcy” and “Chapter 13 bankruptcy”, your credit is in dooms, and the only way to salvage it, is constantly being consistent.
On the brighter side, filing for Chapter 7 bankruptcy means that you will not be eligible for Chapter 7 for another eight years.
However, the immediate impact does fade away if you have a stable credit score. The debt-to-income ratio (DTI) is reduced dramatically.
The total amount of debt you owe compared to the credit you possess is called your (DTI).
The only downside of bankruptcy is that it can stay for as long as ten years on your credit report.
Are you worried the signs of debt and bankruptcy on your credit report will stay forever? Don’t be alarmed. They will be removed after the allotted bankruptcy period is over.
A year or two down the line, lenders will eventually start looking past your bankruptcy and focus on your current credit score.
Easy Ways to Have Stability in Credit after Bankruptcy
Emergency Funds and Savings
It is always essential to always be mindful of your finances. After bankruptcy, it is common to fall into a debt spiral. However, a little bit of savings can cushion that fall.
Avoid high-interest loans, and any emergency funds you gather in a savings account can help rebuild your credit after bankruptcy.
Using New Credit Wisely
Your credit plays a vital role in converting your lousy credit score to a good credit score, depending on what type of payment history you have.
Never go above 30% of your credit limit. We recommend that you keep your (DTI) low. For an exceptionally good score, keep it under 10%
Rebuilding your credit after bankruptcy demands vigilance in making on-time payments as your payment history makes 35% of your credit score.
Keep Your Balance As Low As Possible
There is no quick way to repair a bad credit score. Rebuilding credit after bankruptcy boils down to monitoring your finances. Do not pile huge credit bills that are way above your credit limit.
After a year of your bankruptcy, you can afford to have some disparities in your credit score. Lesser the (DTI), the greater the creditworthiness.
Is your Credit Score Error-Free?
Make sure your Fico score stays in alliance with your improving credit report. Think of it this way; the decision to lend you a loan based on your creditworthiness relies on this score.
- According to the company, over 90% of top lenders use these scores
- When it comes to financial decisions, Fico scores are the fastest and most efficient measuring tool
- It works in favor of both lenders and the consumers. As a result, lenders trust this score completely
- Collects information from three major credit bureaus and gives an original three-digit score
- Keep a close eye on your scores, with 500 and lower being poor and above 800 being exceptional
Credit Reports and Authorized Channels
Important to note, if your credit card issuer reports your credit score to the three major credit bureaus, it can uplift your credit score drastically.
Credit bureaus provide this information to companies that hire individuals, insurance companies, and loan companies to make better decisions.
Building Credit When You Have None
Although bankruptcy has long-lasting effects that can last up to 10 years (depending on what type), however, you can climb out of your debt almost immediately with a few proven methods.
- Make timely payments of your credit card
- Avoid over-exceeding credit limit
- Accurately record your bankruptcy report
- Pay loans on-time
- Get rid of debts
- Acquire a savings account
The details of improving your credit score may seem overwhelming. However, rebuilding your credit after bankruptcy is undoubtedly attainable.
Of course, the credit repair process is a slow burn.
However, it is an aftermath of the impact bankruptcy has on your credit. Rebuilding credit and getting lenders to trust you again certainly requires some extra work.
A healthy balance between your finances and credit is a practice you should learn.
We have gathered these easy but proven steps for you to turn your tables around.
In conclusion, this article debunks your myths and concerns if you are a victim of bankruptcy.
If you work smarter and showcase consistent responsibility, the final result is that your credit score can improve with flying colors.
The most common question people ask is about getting scammed. The most common scams are credit repair companies or fraudulent schemes.
1. What to do when you get scammed?
The quicker you act, the better it is.
- Get your FTC report from ReportFraud.ftc.gov.
- Please report it to the local consumer affairs officer
- Contact your local attorney or lawyer
2. What are some easy ways to identify a scam?
- They demand payment before doing actual work
- Absence of authentic paperwork or legal documents
- Try to sell you a cop-out or a shortcut
- Asks to not contact legal authorities or bureaus by yourself
3. How to get negative reporting removed from your report?
Unfortunately, there is no way to remove negative reporting from your report unless it is not accurate.
Generally speaking, you can only dispute inaccurate or fraudulent misreporting, but any factual negative reporting lasts for at least seven years.
This article solves all your queries about building credit after bankruptcy and helps you build a good credit score in the future.