Keep A Close Eye On Your Credit Reports And Credit Scores
Every year, you are entitled to one free copy of your credit report from each of the three major credit-reporting institutions: Equifax, Experian and TransUnion. Take advantage of this and regularly examine your reports for errors or missing information. If you find any inaccuracies, such as a delinquent account that doesnt belong to you, you can report it to the appropriate credit-reporting agency. When the negative mark is removed, your credit score will likely rise.
Why this matters: Inaccurate information on your credit reports can cause a low credit score.
How to get started: Use AnnualCreditReport.com to access your credit reports for free. Through April 2021, you can access each of your reports weekly. Many credit card companies also provide regular updates on your credit score.
Tip No : Check Your Account Statuses Carefully
Each account on your has an account status associated with it. Once your bankruptcy is complete, every account included in your filing should say discharged or included in bankruptcy.
If you see anything else in the account status field for any of the accounts, then it is probably a mistake and it needs to be corrected. This includes statuses like, active, current, delinquent, or charged-off.
Get A Secured Credit Card Or Loan
When you are trying to improve your credit score, one of the best things you can do is get a secured credit card.
A secured credit card is a type of credit card that is backed by a security deposit. This means that if you default on your payments, the credit card company can recoup their losses by taking the money out of your security deposit.
There are a few different benefits that come along with getting a secured credit card.
First of all, it can help you to improve your credit score. If you use your credit card responsibly and make your payments on time, then you will see your credit score start to improve. This can be a great way to get back on track after you have had some financial difficulties.
Another benefit of a secured credit card is that it can help you to build up your credit history. If you have no credit history, or if you have a very limited credit history, then a secured credit card can be a great way to get started. Youll boost your credit by using your credit card and making your payments on time. This can be very helpful when you are trying to get a loan or a mortgage in the future.
Finally, a secured credit card can help you to establish some financial discipline. When you have a security deposit backing up your credit card, you will be less likely to spend more money than you can afford. This can help you to avoid getting into debt and can help you to stay on top of your finances.
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Improving Credit After Bankruptcy Or Foreclosure
If you’ve filed for bankruptcy or recently gone through a foreclosure or short sale, it’s important to know what effect those events will have on your credit score and credit report. When can you get another mortgage, car loan, or credit card?
In the case of bankruptcy, the hit to your credit is somewhat dependent on how good your credit was before bankruptcy. If you had good credit, your score will take a bigger hit than if your credit was already in the dumps. As for foreclosure, when you can get new credit depends, in part, on the reason for losing your home. If it was due to the recent economic recession, and not poor financial decisions, you may be able to get a new mortgage or car loan sooner.
Below you can find out how each of these negative events will affect your credit, when you can qualify for new loans, and what steps you can take to start rebuilding your credit.
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Make All Payments On Time
Payment history is the single most important part of rebuilding credit after bankruptcy. On-time payments build your credit, late payments destroy it. Adding new accounts will help you build credit, but only if you make every payment on time. If you dont, they will do more harm than good.
Before you take on any new credit, check your budget and make sure you can afford it. If you have an emergency fund in place youre in better shape: if youre having a rough month you can dip into your emergency fund to keep your payment history solid.
Setting up automatic payments from your checking account can help if you have problems with forgetting payment dates. Be sure the balance in your account will cover the payments. Overdraft fees add up fast!
Apply For New Credit Cards
After using a secured credit card, demonstrating new financial habits, and building up your credit score, the next step is to begin researching options for an unsecured card. When considering card options, keep in mind that the card issuers might have strict bankruptcy eligibility conditions, requiring card applicants to be bankruptcy-free for a certain number of years before approval. Not reading the fine print before applying for an unsecured card risks a denied application, which further hurts credit. However, take note that many modern lenders are surprisingly lenient with previous bankruptcies. American Express, for instance, previously required applicants to be bankruptcy-free for seven years prior to application. This policy has now been reduced to two years.
When applying for unsecured cards, focus on cards with low interest rates and annual fees, as well as flexibility for applicants on their road to financial recovery. We recommend the MBNA TrueLine MasterCard, which offers rates ranging from 5.99%-14.99% and no annual fee at all. Another excellent option is the Essential card from AmEx, with 8.99% interest and a balance transfer promotion for 1.99% over the first six months.
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Where To Start After Filing For Bankruptcy
While many consumers, after filing bankruptcy, avoid new credit at all costs due to the fear of repeating past mistakes, its crucial to your credit restoration success that you begin rebuilding your credit by opening a secured credit card, retail or gas card, or purchasing a new vehicle if your previous vehicle was relinquished during the bankruptcy.
Once youve acquired some form of credit , make sure that you make your payments on time every month, possibly by setting up online bill pay through your checking account, and make sure that you use your new credit card every month while also paying it off each time. Many people find it helpful to use their new credit card on a typical, small monthly bill like a phone or electric bill and pay off the credit card shortly after.
Should you have filed your vehicle or car loan into your bankruptcy, you will likely be able to apply for a new car loan fairly easily, albeit at a high interest rate. You should definitely ensure that if you purchase a new vehicle that the monthly payments will not cause you financial burden and that the creditor will, in fact, report the loan to all 3 credit bureaus. Making a monthly payment on a car loan will help to rebuild your credit after a bankruptcy and will show that you are being financially responsible.
Be Cautious About Job
As lenders often factor in your job history when approving a loan, holding down a stable job and having consistent income can boost your chances of getting a loan. Thats because stable employment can make lenders look more favorably on your ability to pay your loans.
While switching jobs might be okay, having gaps in income might make you seem more like a risk to lenders.
Why this matters: When youre trying to land financing after bankruptcy because your credit is shaky, youll want to make sure your finances are stable. Having consistent income and not job-hopping too much can help you look more favorable to lenders.
How to get started: When researching lenders, see if employment history plays a part in decision-making. If youre self-employed or side hustle, be prepared to provide additional income verification. The more documentation you can provide that shows your income is consistent.
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Getting An Auto Loan After Bankruptcy
Another option to consider is to get an auto loan, if you don’t already have one. As you make payments on time, you begin to build a positive payment history. Having a healthy mix of different types of credit, both revolving and installment accounts, is another factor that credit scorers use when determining a score. If you don’t have an installment loan on your credit report, then getting an auto loan might help your profile by creating a more diverse credit mix.
Of course, make sure you’re financially ready before applying for any new credit
Keep Your Credit Utilization Low
If you have a card with a $2,000 credit limit and your balance is $1,000, you are using half of your limit and your credit utilization is 50%. Most experts advise keeping your credit utilization under 30%, and lower is better. About 10% is considered ideal.
If your limit is low, you can keep your utilization low by using your card only for a few small expenses that you can pay off easily each month. Use cash or a debit card for everything else.
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Check Your Credit Report
If youre trying to repair your credit after bankruptcy, start by familiarizing yourself with your . All consumers can access a free copy of their credit report through AnnualCreditReport.com. Free reports are typically only available once a yearbut in the wake of the Covid-19 pandemic, consumers can access free weekly reports through April 20, 2022.
Understanding what makes up your credit score can make it easier to make targeted improvements and provide insight into why your score is or is not increasing. Youll also be able to spot any errors that are bringing your score downsuch as incorrect account information or inaccurate public records.
Reviewing your credit report can also help you confirm that your bankruptcy is removed from your report as soon as possibleafter seven years for a Chapter 13 bankruptcy and after 10 years for a Chapter 7.
Save Up For A Down Payment
Also, save up cash for a down payment to help offset the loan amount. Even if you qualify for the full loan amount, youll likely be charged a high interest rate. So paying a sizeable down payment helps lower your financial burden to avoid setting yourself up for another financial debt trap.
Its also helpful to realize that you dont need a brand new car. A reliable used car can be just as functional without the depreciation as you drive it off the lot.
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What Not To Do
It may be tempting to begin applying for lots of credit right away. Please resist this temptation.
If you want to get your credit score back on track, it will only be possible slowly and cautiously.
Dont close any credit accounts that remain open. If any of your credit accounts remain active or open, do not take it on yourself to close them.
Your credit score depends upon the length that your credit has been in place for at least part of the overall rating.
Dont fall for payday loans or bad credit loan scams. A lot of unscrupulous lenders monitor the court records for bankruptcy judgments and will try to offer you loans at exorbitant rates. These are traps and should be avoided at all costs.
Avoid credit repair services as well. Most of these services will not be able to do any more than you can by yourself and will charge you a lot of money in the process.
If you follow these guidelines and make a serious effort to fix your credit after bankruptcy, youll find its quite possible to do.
Use this experience as a second chance and commit to doing things differently. Chances are youve learned a lot about credit and debt that you didnt know before you began the bankruptcy process, which is a good thing.
Take that knowledge and begin developing new habits of responsible debt management.
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How To Repair Credit Score After Bankruptcy
Once your bankruptcy is completed, your situation is no longer dire, but it isnt rosy as far as creditors are concerned either. Theyre going to want proof that you can pay off your debts and have money left over to take care of your daily needs.
For that reason, creating a budget that is within your means is a good first step. Here, you can plot out your utility expenses, rent or mortgage payments, car loan payments, and whatever else you need on a daily basis to get by. Having an emergency fund that you can pay into every month is a good place to start. This could be a savings account in which you deposit 10% of your check each pay period.
What else can you do to rebuild credit after bankruptcy?
- Check your credit score. Your current credit score will be your baseline for moving forward. The bankruptcy will stay on your credit score for the next 10 years and any accounts that were wiped out in Chapter 7 will stay on your account for the next 7 years. Theres nothing you can do about that. What you can do is prove to creditors that youve moved forward and are ready to make the necessary changes to your lifestyle to pay back what you borrow.
- Assess your options. You will have several options moving forward on the types of lending products you can purchase to rebuild your credit. These include secured loans, secured credit cards, co-signed credit cards, co-signed loans, and authorized user cards. Well discuss these in more detail below.
Rebuilding Your Credit Score After Bankruptcy
After 12 months, once you have been discharged, you may begin to look for bankruptcy advice about how to rebuild your credit score. This might be because you want to take out a mortgage for a house, buy a car, or get a loan for another reason. Although it is important that you avoid serious debt obligations that you cannot afford, debt that you can afford to repay to fund your future is not inherently bad.
Remember: you might still have up to two years of repayments due, repayments for debts not included in the bankruptcy, and it will be five years before your bankruptcy is removed from your credit file, but the debts included in your bankruptcy debts should now be discharged and have a zero balance, giving you the beginning of a fresh start.
Are you struggling with debt?
We have a wide range of debt management solutions that could help you write off up to 81% of your debts
Your first step, therefore, may well be to look at your credit file and assess how much damage your problem debts and bankruptcy have had. It should cost you about Â£2 to ask a credit agency to give you your credit report, and you should use this chance to make sure it is as accurate as possible.
Tip: Asking for your credit score often can negatively impact your credit score as it can make you appear desperate or unstable, so only ask for it when it is absolutely necessary.
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Build An Emergency Fund
Because much of your debt will likely be eliminated following a bankruptcy, its an ideal time to start building up your savings. By putting a portion of your income into a savings account or cutting back on nonessential subscription services or memberships, you avoid applying for loans which could put you back into debt if youre unable to keep up with the high interest rates that come along with bad credit.
Why this matters: Without an emergency reserve, it can be easy to fall into the same debt pitfalls that caused the bankruptcy.
How to get started: After your debt payments are removed as part of the bankruptcy process, make sure to create a budget based on your income and remaining expenses. Include building an emergency fund as part of your new budget.
What Bankruptcy Will Affect While On Your Credit Score
Your payment history, on-time payments, and recent credit reporting can all affect how lenders work with you.
Once you file bankruptcy and businesses see your credit report’s negative information, you may have concerns about:
- Getting a car loan
- Getting loans without a qualified co-signer
- Adding authorized users to some credit cards
- Security deposits and returns of safety deposits
You have options regarding all these concerns if you are having credit or debt issues. There are ways to address each concern by yourself or with professional help. Getting a fresh start is possible, especially after filing bankruptcy.
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