Tips for Rebuilding Credit After Bankruptcy
Filing for bankruptcy allows you to press the restart button on your finances. Whether you filed for Chapter 7 bankruptcy (a simple and straightforward elimination of your unsecured debts) or a Chapter 13 bankruptcy (a structured repayment plan approved by the bankruptcy court), you can begin restoring your credit immediately after receiving your bankruptcy discharge.
One of the biggest misconceptions about filing for bankruptcy is that it will ruin your credit score and your financial future. To the contrary, the negative impact on your credit score diminishes considerably after one and a half to two years. Here are some tips to help put you on the fast track to rebuilding your credit after bankruptcy.
- Get a FREE copy of your credit report. Go to annualcreditreport.com and pull all three of your credit reports (Experian, Equifax and TransUnion). Confirm the information is accurate and be sure that all the debts that were part of the bankruptcy filing are marked as discharged and with a zero balance.
- Create a realistic budget. This budget will need to list your income minus expenses for housing, utilities, groceries and other expenses. A budget will help you stay on track financially and keep you out of debt.
- Pay bills on time and in full. Set calendar reminders on your phone and email as to when your bills are due. If you feel comfortable, set your regular bills up on auto-pay so you are never late on a payment. Do not spend more than you can afford each month and pay your credit cards in full so you do not incur any interest charges.
- Open a new bank account and savings account. This not only demonstrates financial stability, but it can also provide you with a clean slate to maintain good financial habits. Add a savings account. Having a savings account with as little as $250 can help you cover an unexpected expense, instead of having to use a credit card. After bankruptcy, you are in the best position to save because you have eliminated your debt and can now plan for your financial future.
- Apply for a secured credit card. This type of card is secured by the deposit you put down. The deposit determines your credit limit on the card. These cards are one of the easiest ways to build credit and improve your credit score.
- Consider a secured loan. These loans are typically offered by credit unions or community banks. One type of secured loan involves borrowing against money you have already deposited. The other type can be made without upfront cash. Instead, this money is loaned to you and is placed in a savings account and released to you only after you have made the necessary payments. In return, the financial institution agrees to send a report to the credit bureaus. A great one is offered by Fairwinds. You can find it here: https://www.fairwinds.org/personal/loans/other-loans/deposit-secured.html
- A co-signed credit card can improve your score, but it is a big request. Essentially, this individual (the co-signer) is risking his or her own credit history for you and will be on the hook if the full amount is not paid on the card. If asking to co-sign is too much, an authorized user status can benefit you just the same. Basically, you are an authorized user on that person’s credit card. Make sure the credit card will report the payment activity by authorized users to the credit bureaus, otherwise it will have no effect on your score.
- Monitor your credit to debt ratio. When qualifying for new credit, remember to keep your credit card balances relatively low compared to the card’s limit. For example, less than 30% is typically advised while using just 10% of the available credit (combined with making on-time payments) is even better for your credit score.
If you have any questions on this topic or are struggling with insurmountable debt, call Orlando bankruptcy attorney, Walter Benenati at 407-777-7777. Ask Walter how you can restart your life. At The Benenati Law Firm, we have helped thousands of individuals and families eliminate their debt and get a fresh start financially. The day you hire our firm, we will contact your creditors to stop the harassment and collection calls. We make our hours convenient for our clients and offer free consultations on Saturdays (9:00 a.m. – 3:00 p.m.) and throughout the week until 5:00 p.m. If you are in a financial crisis and considering filing for bankruptcy, contact an experienced Orlando bankruptcy attorney who can advise you of all of your options.