Six Tips to Rebuild Credit After Bankruptcy
Building back from bankruptcy can be a long and tedious process that requires dedication, patience, and a pretty decent amount of financial knowledge. If you have undergone a bankruptcy, it’s important to equip yourself with the proper financial knowledge.
Working with an experienced bankruptcy attorney can help you navigate bankruptcy and build back better as you come out the other side. In addition to seeking financial advice from experts and non-profit organizations, it’s important to implement specific habits in order to rebuild your credit.
Undergoing bankruptcy does not have to mean that you’ve ruined your credit forever. Read on to learn about how you can repair your financial trustworthiness sooner rather than later.
Check Your Credit Report
Knowledge is the key when it comes to anything, especially building up your credit. The first step in rebuilding your credit after bankruptcy is understanding your credit score and your credit report. You can get a free copy of your credit report once a year from each of the three major credit reporting bureaus through www.annualcreditreport.com. Go over your credit report in detail every four months and understand any loans or records that are listed on it. When the time comes, be sure to review the report to make sure your bankruptcy has been removed as well. Chapter 13 bankruptcies should be removed after seven years while a Chapter 7 bankruptcy should be removed after ten years.
Understand Your Credit Score
Following bankruptcy, your credit score will drop anywhere from 100 to 200 points instantly. Your credit score can continue to drop as a result of other poor financial decisions and outstanding loans. Making timely payments on any loans you have out along with regular bill payments will help improve your credit score over time and prevent further deterioration. Limiting your number of open credit lines and not overutilizing your available credit will also help improve your score.
Practice Good Credit Habits
Your spending habits are the single most determining factor of whether or not you’ll be able to rebuild your credit successfully. If you are trying to rebuild your credit after bankruptcy, start by getting yourself on a budget and spending only what you need to. Additionally, build up an emergency savings fund for four to six months of living expenses. Once you have an emergency fund saved up, try to reduce your overall credit card usage on big payments that might push you back into debt. If you are going to be using credit cards to pay for items, make sure that these are items you can actually afford. Once you purchase using a credit card, ensure that you are making regular on-time payments.
Limit Your Credit Cards
Having multiple credit cards is one of the easiest ways to fall back into debt and poor credit. Avoid this by selecting one secured credit card that you will use to help rebuild your credit.A secured credit card is essentially a credit card that requires you to make a refundable security deposit. When you use your secured credit card, you’ll be borrowing against this deposit. Shop thoughtfully when you’re looking for the right secured credit card. Most have high-interest rates, but they all report to the three credit reporting bureaus, meaning they can help you improve your score.Finally, some applications for a secured credit card require a hard credit check that can negatively ding you on your credit report. Avoid this by opting for secured credit cards that offer pre-qualification, giving you insight into whether or not you will be qualified for the card.
Use a Credit Builder Loan
A credit builder loan is a unique alternative to a traditional loan. When applying for a credit builder loan, you’re essentially working with a lender who will hold a designated amount of money in a secured savings account under your name. As with a traditional credit card, you’ll then need to make payments, including interest, to pay off the loan. A credit builder loan works much like a secured loan offered by a bank. Secured loans allow you to borrow money against your savings account. These types of loans can help rebuild your credit because the activity is reported to the major credit bureaus which will then reflect your payment history on your credit report.
Ask to Become an Authorized User
Becoming an authorized user is one of the best ways to start rebuilding your credit. It’s also a common way parents help children build up their credit when they’re first getting started. To become an authorized user, you’ll need to ask someone you trust and who trusts you with financial decisions. Because you’ve undergone bankruptcy, it’s best to work with parents, siblings, and any other family members who are willing to take a chance on you. Once you have an individual who is willing to help you, you’ll need to become an authorized user on their credit card account. An authorized user allows you to have a credit card in your name that is linked to their individual account.
By practicing and maintaining good credit habits, you will be able to use the credit card all while reaping the benefits of the account holder’s good financial standing. The credit card payments you make will show up on your credit report and will help improve your credit score over time as well. If you do get granted authorization on another individual’s credit account, be sure to use your card responsibly as your activity could harm the account holder’s credit standing.
How Long Does It Take to Rebuild Your Credit After Bankruptcy?
When you’re rebuilding your credit following bankruptcy, you must remember that slow and steady wins the race. Rebuilding your credit history is a long and arduous task, but it does pay off if you follow through.
Working with a financial planner and a bankruptcy attorney is a good way to stay on top of your credit habits so that you can rebuild during bankruptcy as quickly and efficiently as possible. Learn more about navigating bankruptcy and life after by reaching out to the attorneys at Rounds & Sutter, LLP. Our skillful team of bankruptcy attorneys is committed to helping you navigate complex and overwhelming financial setbacks.