Filing for bankruptcy is never an easy decision and should not be taken lightly. But sometimes it is the only way to get back on your feet financially. If you have tried everything you possibly can and there is still no way out from under that mound of debt, you may have nothing left to do but file for Chapter 7 or 13 bankruptcy.
A bankruptcy can remain on your credit report for up to 10 years and there is a good chance your FICO score will be lowered because of it. But fear not, there are ways to repair your credit after a bankruptcy.
Review Your Credit Reports
After the bankruptcy dust settles, the first thing you should do is obtain a current copy of all three credit reports. You can request a free copy of your Experian, Equifax, and TransUnion credit reports once a year from AnnualCreditReport.com. These reports do not come with a credit score but you can get your score for a small fee. There are also numerous companies that offer a free credit score if you sign up for their credit monitoring service. This is a good idea if you would like to check your report numerous times throughout the year and if you want to be notified of changes on your report. We have a list of recommended companies.
Stay Current on Your Monthly Payments
This might sound obvious but it is worth saying. Your payment history makes up 35 percent of your credit score so one of the easiest ways to increase your score is to pay your bills on time.
If you are one of those forgetful people, set up reminders on your iPhone or Android calendar or set up automatic payments. This way you will not only ensure timely payments, but it will also make the task easier for you and less stressful.
Apply For New Types of Credit
If you didn’t keep a major credit card account open during your bankruptcy, it is a good idea to get one after your bankruptcy has been discharged. You may have to start with a secured card, which requires that you place a security deposit with the issuer to open the account. Once you get the card, make sure to make timely payments and pay your bill in full every month. You don’t have to carry a balance on your card to build good credit.
Add a Loan to Your Portfolio
Once you have gone a year or two post-bankruptcy, consider getting a car loan or a line of credit. If it’s a car loan, buy a vehicle that is affordable and that you can pay off successfully. Shop around for the best rate, and keep in mind that once you have raised your credit scores, your next interest rate on a loan will likely be much lower. The best place to get a car loan or a line of credit, after a bankruptcy, is your local credit union. They are more eager to help a person build up their credit than a traditional bank.
Beware of Credit Repair Services
You may receive offers from credit repair services promising to help repair your credit. Make sure you thoroughly investigate these services before you use them.
You can repair your credit on your own and as you probably have already noticed, this website is loaded with DIY credit repair and debt settlement information. There are many ways you personally can rebuild your own financial future at no cost.
Keep Your Credit Balances Low
Again, once you begin re-establishing credit, it is crucial to know the limits on your credit cards and to keep your balances well below them. You may have a very low limit due to your credit history but that’s OK. Use your cards sparingly and continue paying the bill on time.
Do Not Close Credit Accounts
If you have accounts that were not closed due to the bankruptcy, you may think you’re doing the right thing by closing these other lines of credit and swearing off all credit cards. This action does far more damage to your credit than you might think. Closing accounts reduces the amount of credit you have available to you which leads to lower credit scores. It’s best to keep the credit lines open. If you’re tempted to spend, cut up the cards. That way you will not use them and start racking up high balances – which is what got you into the bankruptcy mess, to begin with!
The most important lesson to learn is to be patient. The road to bankruptcy did not happen overnight. And neither will the road to improving your credit. By following the guidelines above, you can move toward a better financial future and increase your credit score.