After you file for bankruptcy, it takes time to rebuild your credit, and you might not know where to start. While it might not be easy, it is possible to rebuild your credit after bankruptcy. Here are some tips on how to make it happen:
Begin With Financial Essentials
Your first goal should be to create a budget, to keep track of your income and your spending. This will help you realize what you should and shouldn’t be spending money on.
Once you have created a budget, your next goal is to develop an emergency fund. A sudden car repair or medical bill can hurt your financial stability, this is where the emergency fund is useful.
You must know that this fund is for emergencies only, and you shouldn’t use it for any other situation. By building your emergency fund, you can avoid getting into debt.
Develop a New Strategy
After bankruptcy, consumers often assume that lenders will never give them a loan again. While it might not be easy, you can prove that you are worthy of credit again. Unlike people without a credit history, your issue is that creditors know too much about your past.
Start by figuring out where you are right now–look at your free annual credit reports to see if there is inaccurate, negative information. Any inaccurate information has to be corrected because this information could make it harder for you to get out of debt. Dispute any errors and get them fixed immediately.
Some of the negative information will be accurate–meaning any late payments. This is since the bankruptcy and debts in collection will remain on your credit history. Debts in collection and late payments stay on your report for seven years. A Chapter 7 bankruptcy remains on your report for 10 years. While your bankruptcy may have removed your debts, it will not make your credit report blank again.
Now, you need to check your credit score, which can be done online for free. While it is best to track your score every month, you can also just use a free annual report. If you track your credit score each month, use the same credit bureau to avoid any confusion.
Get the Right Financial Products for Your Needs
Your payment history prior to the bankruptcy will make you look risky to a lender. The easiest way to fix this is to establish a good payment record. Then, you need to make sure that this record shows up on your credit report. There are four basic ways to start restoring your score and payment history:
Secured Credit Cards
This type of credit card requires you to give a deposit, and the limit you give is normally based on the deposit. While secured cards typically have higher interest rates and annual fees, you will not need it forever, and you can shop around for the best options.
You only need to have it long enough to show that you are capable of making payments. While you could get rejected for a secured card, it is easier to get one of these rather than an unsecured card.
Authorized User Status
Some people are naturally afraid to co-sign for a loan. If you cannot get anyone to be on a loan with you, you could ask to become an authorized user on their credit card.
Make sure that the credit card company reports payments from authorized users so that it actually rebuilds your score. This technique will not boost your score as much as other techniques, but it can still help.
Secured Loans
Secured loans typically consist of one of two options. A secured loan can involve borrowing money from a deposit–if you choose this option, you cannot access the deposit when you are still paying off the loan.
The other type of loan is done without paying a deposit. The loan is put into a savings account, and it only becomes available after you have made the payments.
With both options, a report on your payments is sent to the credit bureaus.
Co-Signed Loans and Credit Cards
If you can find someone to co-sign a loan for you, it can boost your score. This is a huge risk for your friend or family member because they must pay the loan if you cannot. It can also limit their ability to borrow anything else, so finding a co-signer is not always an option.
Avoid Making the Same Mistakes Again
While rebuilding your credit doesn’t happen overnight. You should take rebuilding your credit very seriously, and make it a main priority in your life.
You might feel like now that you have bad credit, your life will never get to a stable place. As long as you stick to a positive routine and are taking the necessary steps, you can eventually improve your credit.
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