Rebuilding credit after bankruptcy may seem like a long, tough road, but it’s not as difficult as you might think. Filing bankruptcy won’t completely destroy your finances. Instead, it can give your financial life a fresh new start, allowing you to build a better future.
If you take the right steps immediately and vow not to let your finances get out of control again, you can stay on the financial strait-and-narrow. To learn more, contact Chicago Bankruptcy Attorney at Lorraine M. Greenberg & Associates today.
Steps to Rebuilding Your Credit After Bankruptcy
While bankruptcy will keep showing up on credit reports for 7-10 years, it can improve your credit score a bit. One thing it does is completely remove the negative comments, late payment notices, and the like for discharged debts. Those debts will be marked as settled.
Be sure to check with your creditors once your bankruptcy is complete to have them update their information. One way you can do this is through a credit correction service.
1. Get a Secured Credit Card
The simplest way to start rebuilding credit after bankruptcy is to acquire a secured credit card. It may take you a while to start getting credit card offers again, but they’ll come. A secured card is one with a low limit, upon which you place a cash deposit. Typically, this will be equal to your credit line, though your credit line may be slightly higher, depending on the size of your deposit.
Next, make small, strategic purchases on the new card and pay them off as soon as possible. Never exceed 30% of your credit line; anything higher will worry your creditors. So if you have a $500 credit line, for example, never make over $150 worth of purchases monthly.
2. Get a Loan
This will diversify your credit portfolio and is a good way to boost your credit score if you’re careful. The reporting agencies prefer a mix of debt types. If you retained your home and mortgage after the bankruptcy, this will help diversify your debt. Since they don’t want to see just credit cards, an additional small loan will also look good.
If you can get a small loan, do so. Use it for home repairs or something equally valuable. Make sure it’s small and secured, and pay at least the minimum payment due each month — more if there’s no early repayment penalty. That will look great on your credit record.
The bigger the loan, the more dangerous, of course; but you may need to take out a bigger loan to buy an inexpensive car, for example. If so, do it; but realize you may have to pay a higher rate to a lender willing to work with high-risk borrowers.
Be prepared to pay your bills completely and on time each month, even if doing so requires a temporary sacrifice. Once you pay off the first loan, another type of loan can help you diversify your credit further.
3. Watch Your Credit
Check your credit regularly to see how you’re doing, and to make sure it’s accurate. You need to know where you are at all times. We recommend you check your credit once every month or so, or hire a credit monitoring service to do it for you. This will also protect you from identity theft.
Recovery May Be Faster Than You Think
Although bankruptcy will stay on your record for 7-10 years, you may recover from bankruptcy faster if you follow the above suggestions and carefully rebuild and monitor your credit. At some point, you may find it easier to take out loans and get other credit cards without secured lines, though of course you should still take great care with them.
Remember, you can only file for bankruptcy every 8 years, and ideally, you don’t want to do it again. Rebuilding credit after bankruptcy is hard enough to do once.
When you get to where you’d like to be, take another long look at your credit report and make sure everything is as it should be, with all the discharged debts marked as settled, and all payments on time and shipshape.
Speak to a Chicago Bankruptcy Attorney Today
If you’re filing for bankruptcy and you’re worried about rebuilding your credit afterward, Lorraine M. Greenberg & Associates can help. Contact us today.