Have you recently filed for bankruptcy?
Do you feel defeated and think there is no way to rebuild your credit?
Recovering from bankruptcy can be difficult, both financially and emotionally, but it is possible.
Watching both of my parents file bankruptcy, I saw firsthand the struggle that followed.
The decision to file bankruptcy is often a difficult decision, and complicated legal procedures can be not only difficult, but also damaging to your credit. But the impact of bankruptcy on your credit report is not forever and will last 7 or 10 years, depending on the type. Also, the effects of bankruptcy diminish over time, and there are many ways to increase your score during that time.
Keep making payments on your existing loans and credit cards.
Don’t try to get funds immediately, focus on making timely payments on your existing loan or credit card each month to help you rebuild your credit. Payment history makes up 35% of your FICO score, so paying on time is one of the best ways to increase credit and show that you can be financially responsible.
Why it matters. Taking appropriate steps to rebuild your credit after filing bankruptcy will improve your financial behavior and demonstrate your creditworthiness to future borrowers.
Here’s how to get started: Sign up for automatic payments and try to make on-time payments. You should make at least the minimum payment. If possible, make additional payments.
Set reminders to make payments on time. Some credit cards can get a phone call or email notification before they expire. Keep track of your spending. You can use your credit card to pay for items by email, phone or online, or set an alert if you spend more than a certain amount.
Find the right credit product for your situation.
Looking at your payment history prior to bankruptcy can make you seem like a very risky lender to borrowers. You can solve this problem by providing additional assurance that they won’t be hurt by lending you money.
Among other ways to improve your financial profile, some loan products designed to do just that include:
Take advantage of secured loans or lending institutions. There are two types of this, most often provided by credit unions or local banks. One type of secured loan involves borrowing money that is already on deposit. You won’t be able to access the money while you’re repaying the loan. Other types can be done without cash, but the money lent to you is put in a savings account and is only given to you after you pay off the money you need. In turn, the financial institution agrees to send your payment history report to the Loan Department.
Get a secure credit card. This type of card is backed by the deposit you make, and usually the credit limit is the amount you deposit. Guaranteed cards may have an annual fee and a high interest rate, but they are not required in the long run. This can be used to rebuild your credit until you qualify for a better unsecured card.
May be declined for security cards. Read the requirements carefully. Since your score may temporarily drop a little each time you do a credit check, you’ll almost certainly want to make sure you can get approved before you apply. If you get the card, use it lightly, and pay off the debt on time, that decrease will be offset.
Pay your bills on time
Avoid bad credit due to delinquency.
Pay all your bills on time. Don’t underestimate how important it is to pay regular monthly rates, such as electricity, gas, cable, internet, etc., on time.
If you sometimes forget to pay, set up automatic payments through online banking or make notes in your calendar.
If you don’t have enough money when your account expires, transfer it to another bank account as soon as you get it. If possible, set this to happen automatically on all payroll checks.
Paying your bills on time won’t directly fix your credit, but it will send a signal to borrowers that you are managing your money effectively.
Consider a secure credit card.
You need to open an active account to improve your credit, but you may find it very difficult or impossible to get approved for a traditional credit card or get other credit. The best way is to get a secure credit card or an offer for people created specifically for people with bad credit histories.
A secured card can be opened with a deposit and offers a very low limit, but can also be a great way to start rebuilding your credit. Some security cards do not report to the three major credit bureaus, and in order to improve your credit, you must find a card that reports monthly.
My previous intern, who did not have the most “bad credit,” had no credit history at all. In some cases, having no credit history is as bad as filing for bankruptcy. His credit rating was a measly 621 points, and because of that, two banks refused his attempt to open a credit card.
Requesting to be an authenticated user.
Co-signing credit can be difficult, but it is often more expedient to get credit as an authenticated user using someone else’s credit card. An authenticated user must have a card in their name that is linked to a lender account other than their account. Depending on your merits, you can use the card for purchases without registering for your account, but you cannot change your account.
Credit card payments show up on your credit report, so if those payments are made on time and your credit usage remains low, your score will improve over time. Ask your credit card company to report authorized user payments to your three major credit departments. This gives you the best chance of improving your score. It’s not as effective as other ways to improve your credit score, but it can still help as part of a larger strategy.
Apply for credit to your co-signer.
If you apply for a loan on your own, borrowers may think you are at risk because of your credit history. Getting a co-signer to apply for a loan can help increase your chances of getting approved. This is because borrowers will consider the co-signer’s credit rating, and it will improve your credit score. When someone signs a loan, they don’t have access to that money. But, if you can’t keep track of the payments, they are on the hook for repayment.
Why it matters: Repairing credit after filing for bankruptcy can help you rebuild your credit profile. By figuring out the different options, you’ll know how these different forms of credit can help you increase your credit in unstable situations.
Here’s how to get started: Explore the different options for setting a new credit limit and see what options can help you. You may want to think about whether you need to tighten up your credit, whether you set that credit limit, and whether you have a repayment plan to ensure that you don’t fall into a deeper debt hole.
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