Recover Your Credit After Bankruptcy
Are you ready to recover your credit after bankruptcy? Your non priority debts are discharged—with a clean slate, it’s time to begin reestablishing your credit. Before you do anything else, educate yourself in personal finance. Learn how to read and understand your credit report. Begin to establish new spending, bill paying, and saving habits. As a result, you will be more successful in repairing your credit. Take the following steps to repair and rebuild your credit to ensure a secure, sustainable financial future.
How to Get Started
- Make regular, on-time payments on any accounts not discharged in the bankruptcy.
- As a result, you decrease your debt-to-income ratio, and increase your credit score.
- Avoid frequent job changes.
- Potential creditors may consider frequent job changes a red flag. Before approving a loan, they want to know you have a stable enough income to repay it.
- Begin applying for new credit as soon as financially feasible.
- You may have more difficulty getting credit following bankruptcy, and interest rates and fees will likely be higher. Do shop around with various lenders for your best rates.
Suggested Next Steps
- Take out a secured credit card with an issuer that reports to all the major credit bureaus.
- A cash deposit you make when you open the account secures the card. Your deposit is usually equal to your credit limit.
- Secure a credit builder loan designed specifically to increase your credit score.
- Apply for gas and/or retail store cards.
- These cards are among the easiest unsecured credit to obtain. Be sure you understand their qualifications, terms, and conditions before applying. Applying may lower your score, especially if they deny you.
- Take out a small installment loan.
- Look for a lender who will approve a small installment loan with fixed payments. Some type of property is usually required as security. A car loan or home equity loan will work.
- Apply for a loan or enter into a rental agreement with a cosigner.
- As a result, you may increase your score if you make the payments on time. A cosigner is a person willing to assume the liability if you fail to make the payments.
Dos and Don’ts After Bankruptcy
- Do not apply for too much credit in a short period. Too many inquiries lower your credit score, and lenders consider this risky behavior.
- Make timely payments on new credit cards. Essentially, you must keep a perfect payment history.
- Be sure that all your creditors and lenders report your payment history to all the major credit bureaus. While they have no obligation report, most lenders do. You can also have your rent, utilities, and cell phone payment activity reported. This may not affect your score with all the credit bureaus. However, Experian offers a boost to your score if you have a strong payment history.
- Do use your
- wisely and maintain low balances. Keep to the recommended ratio of 30% of available credit.
Monitor Your Credit Report Closely
Monitor your credit report frequently for any irregularities. Compare the three major companies’ reports for accuracy on each. Each credit bureau—Transunion, Experian, and Equifax—figures credit scores and keeps information according to their own model. As a result, you may find differences between them. If you spot something unfamiliar or inaccurate on your report, open up a dispute with the creditor and send copies to each of the three credit bureaus.
Check for Identity Theft
In 2020, the Federal Trade Commission (FTC) received 4.7 million reports of fraud, a 45% increase over 2019, which resulted in a total of $3.3 billion in financial losses. Identity theft was the leading fraud category, accounting for 29% of fraud incidents. (Source: Experian).
Review your financial transactions and check your credit report for new, unauthorized accounts. If you find irregularities, immediately notify the creditors and all three credit bureaus. Also file a report with the Federal Trade Commission. The FTC site has information on steps to take and how to protect yourself. Needless to say, identity theft and fraud can seriously impact your credit recovery if not resolved quickly.
Rethink Your Spending and Saving Habits
How quickly you recover from bankruptcy depends on your spending habits. Here are some questions to ask yourself. Unless you implement good new habits, you may find yourself in worse financial trouble than before your bankruptcy.
- Do you spend every penny of your income?
- Are you buying only necessities for living?
- Or are you splurging on extras like dining out, clothing, or tweaks to your awesome car?
- Do you have a monthly budget, and do you stick to it faithfully?
- Do you regularly put money in savings?
Recovering from bankruptcy takes time and dedicated effort. Educate yourself—learn how to create habits that lead to a financially secure future. Create a budget for all necessary spending that takes into account all sources of available income. Stick to it. Create a savings account and determine a reasonable amount to add each month. Remember to pay yourself first, even if it’s just a few dollars.
If you would like a free consultation from a non-profit credit counseling agency, Credit Yogi can help you. You’ll be happy you did. Our database includes over 160,000 professionals operating in every zip code in the United States. It’s 100% FREE and you never have to hire anyone. Ever.