Rebuilding Credit After Bankruptcy

Rebuilding Credit After Bankruptcy

Often times, our clients want to how lending professionals view the topic of rebuilding one’s credit after filing for bankruptcy. We’ve spoken with people in the lending industries over our career. The general consensus amongst our colleagues showed that they wouldn’t encounter this often and could only recall a handful of credit reports where people had filed bankruptcy in the past. Of those pulled, however, many of them had a credit score back in the 700’s.

The reason this is possible for some people usually reflects that they have learned from their mistakes and have established a proven track record of debt management after the bankruptcy. Even after bankruptcy, people probably have access to some ability to rebuild their credit. Maybe there is a local business that helps people rebuild credit by offering favorable terms on small purchases. There’s usually an option for a secured credit card or other priority interest that lowers the risks of default and might be available. The key is re-establishing credit and demonstrating good financial habits post-bankruptcy. Some people have said that once they know a bankruptcy has been sought, creditors might still be willing to extent debt knowing you’ll be unable to file for bankruptcy for many years thereafter. This isn’t true for everybody but it is possible to obtain debt after a bankruptcy so you can rebuild your credit.

Implicit in someone who has rebuilt credit after bankruptcy is an assumption that they’ve changed the way they manage debts and has demonstrated those habits with a range of debts post-bankruptcy that have been satisfied. All in all, it is certainly possible to rebuild your credit after bankruptcy. The major factor in our experience, however, is that you must change your lifestyle and your choices. We’ll cover some of the ways you can rebuild your credit and also the mindset required for success. Paramount to success is not doing what put you in debt the first time and exhibiting strong financial responsibility.

Secured Credit Cards/Store Cards

A secured credit card is a credit card where you put up cash as collateral for the card and if you default again, they will have priority interest. This can be you’re re-entry point in rebuilding credit and secured cards are usually available to debtors with bad credit or a bankruptcy. Creditors may feel a bit more at ease issuing this type of credit because its going to be secured by collateral and they will have pretty strong rights in that collateral in most cases. For people who have filed bankruptcy, secured credit cards are a great way to get a credit card quickly and to start re-establishing credit. Don’t worry if the terms of these cards aren’t the greatest. Some might have annual fees, high interest rates or other unfavorable terms. If these are your only option at rebuilding your credit, we recommend you open an account, use the card and pay the statement off every single month. Once you’ve done this for a while, it should open the doors for more favorable credit card terms. As you qualify for better credit cards (“better” means no fees; you should really not care as much about interest rates because it’s very important not to carry balances and end up further in debt even after your bankruptcy). After you’ve started rebuilding, you can consider Cancelling the older cards that charge fees (canceling cards can hit your credit score but it usually recovers quickly). After the first cards, seek out cards issued by stored such as Pier 1 or other places where you can finance a purchase without annual fees. After you’ve paid that card, you should be on your way to rebuilding credit after bankruptcy.

Utility Bills and Other Payments

Make sure you avoid any arrearages on utility bills or other service providers that may place your account into collections. These types of collection actions can devastate your credit even further and make it very difficult to rebuild your credit after bankruptcy.

Mindset for Success

Of course, for most that is also the hardest and the reason it takes so long to rebuild credit. They either become so fearful of the damage credit accounts can do that they don’t open them again (which is a mistake for rebuilding credit), or they simply are incapable of correctly managing a credit account and once again barely tread water. Bankruptcy is your chance to do what it takes to change how you handle money. Before, maybe you spent way too much and saved nothing. After bankruptcy, save enough in the bank to live six months to one full year without income. Save even more if you can. If you use credit cards, pay them off every month. Make sure you track financial transactions, what that comes in and what goes out. Look constantly for ways to save money, cut expenses or earn more. You’ll be much more likely to succeed if you learn financial management skills and ensure you do not even come close to bankruptcy ever again.

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