Rebuilding credit after bankruptcy sounds like a pretty daunting thing, but it is, in fact, entirely achievable with time, effort, and disciplined financial habits. Bankruptcy may appear on your credit report for seven to ten years, but you can take steps to begin improving that credit score nearly immediately after all of your debts are discharged. Here is how.
1. Check Your Credit Report
Start with getting copies of your credit reports from all three major credit bureaus: Equifax, Experian, and TransUnion. Scrutinize the reports to find any mistakes, for instance, debts that were discharged but are still appearing active. Make objections to the credit bureaus on these inaccuracies to ensure that your credit report is as error-free as possible.
2. Budget and Follow it
Bankruptcy offers you a clean slate in financial matters, and it is key to not make the same mistakes again. Start with a budget that is true to your income and necessary expenses. Ensure you stay within your means and save for a rainy day. A budget will help you manage your money effectively, ensuring you do not take on unnecessary debt.
3. Apply for a Secured Credit Card
One of the most effective tools for rebuilding credit is a secured credit card. Unlike a regular credit card, a secured card requires a cash deposit, which serves as collateral. The credit limit is typically equal to your deposit, making it less risky for lenders. By using the card for small purchases and paying off the balance in full each month, you can start to demonstrate responsible credit use.
4. Pay Bills on Time
Your payment history is one of the most important factors in your credit score. After bankruptcy, on-time payments are necessary for rebuilding your credit. This includes not only credit card payments but also rent, utilities, and any remaining loans. Even small bills like cell phone payments can help improve your credit score if they’re consistently paid on time.
5. Consider a Credit-Builder Loan
Another option is a credit-builder loan, which can also be used to build credit. The loans are directly designed for people seeking their credit score improvement. While you make fixed monthly payments, the money you borrow remains in a bank account. Once the loan is repaid, you receive that money, the lender reports your timely payments to the credit bureaus, and hence your credit score starts improving.
6. Patience and Discipline
Rebuilding credit takes time, and you may not see significant improvements immediately. However, if you continue to make timely payments, keep your balances low, and avoid new debt, you will start to see progress. As your credit score improves, you’ll qualify for better financial opportunities like unsecured credit cards, auto loans, and mortgages.
In summary, while it may sound challenging to recover from bankruptcy, by having a structured approach to the process, it is possible. One can rebuild credit and improve future financial situations by following these steps along with discipline.
This post was written by Trey Wright, a Pensacola Bankruptcy Lawyer! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.
The information provided on this website does not, and is not intended to, constitute legal advice; all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.