Some clients fear that they will never be able to obtain credit or repair their credit after bankruptcy. This is a common bankruptcy myth used by creditors to deter individuals from seeking the help they need through the bankruptcy court. While filing a bankruptcy case will cause an initial drop in your credit score and the bankruptcy filing will remain on your credit history for several years, the damage to your credit rating is temporary. Some debtors see an increase in their credit score as early as one year after the filing of their bankruptcy case.
One of the main reasons that the bankruptcy filing will help improve your credit rating is that many of your debts will be discharged through your bankruptcy case. This will immediately lower your debt-to-income ratio, which is one of the factors that determines your credit score. Another reason is that your creditors will no longer be permitted to report your accounts as being delinquent or having delinquent payments. This is a huge factor in determining your credit score. As these accounts begin to age, your credit score will increase as the time between your last late payment and the present date increases. However, there are several things you can do to improve your credit score after bankruptcy.
1. Make payments on time. Timely payments account for over one-third of your credit score. Just a few late payments can substantially damage your credit score. Your payment history remains on most accounts for 36 months; therefore, even one late payment can damage your credit rating. Make all future payments on or before the due date and you will see an increase in your credit score.
2. Apply for a secured credit card. A secured credit card is a good way of re-establishing good credit. The company or bank will require you to place a deposit with the company in case of your default on the monthly payments. As you use the card and pay the monthly payments on time, the company will report those payments to the credit reporting agencies. As you continue to use the card and make your payments on time, your credit score will increase.
3. Request copies of your credit reports. You are entitled to a free copy of your credit reports from all three major credit-reporting agencies every 12 months (www.annualcreditreport.com). After filing a bankruptcy, your creditors should report that the account has been discharged in bankruptcy. You should review your credit reports to make sure that each account has been properly notated. If you find any discrepancies, you should contact the credit-reporting agency and the creditor, in writing, to request that the account be properly noted.
4. Apply for a gas card or store card. When you are ready to wade into the credit waters again, you should do so wisely and with caution. With that said, obtaining a gas card or store card may be easier than obtaining a major credit card. With any credit card, you will find that you will pay a higher interest rate and have a lower credit balance; however, these will improve with time. Having a card that is limited to where it can be used will help limit your spending. Furthermore, if you are using the credit card for purchases you would be making regardless of whether you had the card or not, you can charge your purchases (and take advantage of loyalty discounts and programs) and pay off the balance each month to rebuild your credit.
5. Add an installment loan. Installment loans are great ways to rebuild your credit and increase your credit score. However, it may take you a year or two of working hard to rebuild your credit before you will qualify for an installment loan with a reasonable interest rate. It is extremely important that you make each payment on time; therefore, only borrow a small amount so that you can easily afford the payments even if a financial crisis occurs. One installment loan at a time is the safest way to rebuild credit after bankruptcy. If you try to move too quickly, you may over-extend yourself and face the same debt problem that brought you to bankruptcy in the first place.
Credit counseling and financial management courses
One of the many benefits of filing a bankruptcy case is information you will learn as part of your required credit counseling and financial management courses. These courses are required in order to file a bankruptcy and to receive a bankruptcy discharge. Both courses are designed to help educate debtors on how to create and maintain budgets, use credit wisely and avoid the pitfalls that are often associated with managing money. The tools and skills that you will learn through these courses will help you improve your credit score and credit rating.
Attorney Gene F. Turnwald has been working with consumer debtors for over 21 years. He has helped individuals just like you find affordable solutions to their debt problems. Attorney Turnwald is committed to educating people that there is life after bankruptcy and they do not need to suffer any longer with overwhelming debt. The first step to rebuild your credit is to solve your debt problem. Bankruptcy will not destroy your credit rating – – it will give you the new beginning that you need to recover and rebuild your finances for a stronger, more secure future. Call our office today to schedule a free bankruptcy consultation with Attorney Turnwald.