How To Rebuild Your Credit After Bankruptcy
The unfortunate truth? Debt problems happen. Its important to remember, as you build your finances, assets, and credit, that saving enough money to prevent serious debt problems should be considered a top priority. Then again, situations sometimes occur that push people down the steep slope that is bankruptcy. Their debts become too large to manage and theyve exhausted all other options . So, they hire a licensed insolvency trustee and start the long, time and money consuming hike, back up that slope towards rebuilding their credit.
So, how exactly do you rebuild and repair your credit after being discharged from bankruptcy?
How To Rebuild Credit After Bankruptcy
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A bankruptcy gives you the relief of a clean financial slate but also the worry that youll never have decent credit again.
Although a bankruptcy stays on your credit reports for up to 10 years, its impact on your score will fade with time. In fact, your credit score after bankruptcy may not be as bad as you think. You may actually have a higher credit score a year after bankruptcy than before filing because you stop fighting an impossible battle and begin rebuilding.
If you were eligible to file for bankruptcy, whether it was Chapter 7 bankruptcy, the most common kind, or Chapter 13 bankruptcy, your credit may have already been in tatters. But you can begin to restore your credit right away by offsetting the negative information on your credit report with something more positive.
Rebuild Your Credit After Chapter 13 Bankruptcy
Even though a Chapter 13 bankruptcy can last up to 5 years, you actually can begin rebuilding your credit immediately after you Chapter 13 Plan is confirmed by the Bankruptcy Court. Contrary to popular belief, you can actually obtain new credit while in an active Chapter 13 bankruptcy. Weve actually had clients get a mortgage during a Chapter 13!
After the Bankruptcy Court confirms your Chapter 13 Plan, we will automatically enroll you in the 7 Steps to a 720 Credit Score Program. Even though you may still be in an active Chapter 13 bankruptcy, you will be on your way to rebuilding credit score!
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Getting A Credit Card After Bankruptcy
One of the quickest and best ways to build credit after bankruptcy is with a credit card. It may seem counterintuitive since you dont want to spiral into more debt. However, positive payment history is the most important component of your credit score.
You will probably have a lot of accounts in bankruptcy on your credit report. Therefore, youll likely need to rebuild this portion of your credit report by adding some positive credit accounts.
You dont have to charge all of your expenses on your credit card. Instead, start by selecting one bill to pay every month with your credit card. Then, immediately pay off the balance. As you start to accrue on-time payments, your credit scores will eventually start to increase.
Now you might be wondering how to get a credit card if you have a bankruptcy on your credit report.
Is It True Does Filing Bankruptcy Prevent Future Credit Rebuilding
One of the bankruptcy concerns expressed by many individuals is how will filing a Chapter 7 or Chapter 13 bankruptcy case impact their overall credit rating. In addition, people who meet with our bankruptcy lawyers express concern about rebuilding credit scores after bankruptcy.
Unfortunately, a common bankruptcy myth causes many people undue anxiety and fear about filing bankruptcy. Sadly, this bankruptcy misconception about credit causes people to avoid filing for bankruptcy even though a Chapter 7 or Chapter 13 is the best option for getting rid of debt.
The truth is that a bankruptcy filing can result in a temporary reduction in your credit score. While a bankruptcy filing may remain on your credit report for up to 10 years, you can begin to rebuild your credit as soon as your bankruptcy case is filed. In fact, for debtors who are retaining their home, they can begin rebuilding credit scores by making sure they pay all secured debt payments, such as mortgages on time each month. Past due payments are one of the most common and most harmful credit mistakes people make each month.
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Get A Regular Credit Card
Getting a new credit card can of course help you build a good credit rating. Before the bankruptcy process is over, youâll likely get a number of credit card offers in the mail. Be careful with this, though, as many credit card companies charge a high interest rate for someone who just completed a bankruptcy filing. If you do take out this type of credit card after filing, only charge as much as you can pay off at the end of the month and avoid cards that charge a high annual fee.
Debt To Spending Ratio
In years past the most important thing you needed to remember about credit was paying it in full. The second most important thing to remember was to never pay the minimum. Minimum payments still cause interest payments. And if you get a new credit card that is a credit rebuilder, the interest could be 20%. We will talk about interest a little later.
Today, credit card companies review and judge the lifestyle rather than simply on-time bill payments. The way they do this is they look at whether or not you are living on the credit cards. You may be thinking, So what if I am? This sounds much like a value statement on their part but it still stands true as the way they will judge how you use the privilege of credit with their company.
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Avoid Credit You Cant Affordnever Take Out Loans You Cant Repay
Avoid using payday loans to make ends meet. They wont help improve your credit rating.
If you find that your pay cheques arent enough to make it to the end of the month, consider other options to help avoid ending up in financial difficulty again. If you feel like youre out of options, contact us and well be happy to help you find solutions that will work for you.
After going through bankruptcy, you know the consequences of having debts you cant repay build up. Keep it from happening again by staying away from credit and loans you know you cant afford.
How To Rebuild Your Credit After Filing Bankruptcy
Filing bankruptcy is a powerful tool you can use to get free of debt and give yourself a fresh financial start. Part of this is the opportunity to repair your credit going forward. While your credit will take an initial hit right after filing, there are many ways to restore it. Bankruptcy stays on your record for 10 years in most cases. If you dont take action to increase your credit score during this time, you might find it difficult to lease an apartment or buy a car. It is important that you move as soon as possible to start restoring your credit after you file bankruptcy.
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Apply For New Credit Sparingly
Part of your credit score is based on how many new credit applications you make. Avoid putting in several new credit card or loan applications at once, particularly if youre getting turned down. The new applications will ultimately make lenders wary of approving you because they think you might be desperate for credit. If you’re not having any luck, focus on paying off existing debts and try again in six months or so.
Only inquiries made within the past 12 months affect your credit score.
Pay All Your Bills On Time
No matter what else you do, always pay your bills on time. Even paying your cell phone or your car insurance bill on time will help you establish a positive credit history. Paying on time will also keep your balances in check so you do not reach a point where you can no longer manage your debt.
Be consistent in your efforts to rebuild your credit, and you will slowly see your credit improve after your bankruptcy. You will be able to qualify for new lines of credit, including a home loan or a car loan. But the first step to managing your overwhelming debt and getting on that road to financial recovery should be to talk with a Gilbert bankruptcy lawyer about your options for debt relief.
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How To Actively Rebuild Your Credit
Rebuilding your credit after bankruptcy is not as challenging as it seems, especially if you paid attention during your bankruptcy courses. The two courses that you need to take and receive a certificate for are mandatory which are the Credit Counseling and Debtor Education courses.
They will give you an idea about your personal finances and the debt you came to the bankruptcy with. At least you arent left totally to your own devices but there needs to be more knowledge gained for any real long-term success.
We suggest printing this half of the guide in order to reference the steps easier in the future. Grab a journal or digital document so notes can be taken about your personal situation regarding this information. We will split this section into two parts.
The first part covers what you need to do before you apply for more credit. The second part will cover how to apply for more credit and what types of credit you should have to rebuild credit again. And lastly, how to rebuild safely and not on a house of cards.
How Long Is Bankruptcy On My Credit Report
If you file for bankruptcy or a consumer proposal, it is the Office of the Superintendent of Bankruptcy who reports the fact and date of both your filing and discharge to the reporting agency, not your trustee. In general:
- if this is your first bankruptcy, a note will remain on your credit report for six years after you are discharged. If you are eligible for discharge in nine months, your bankruptcy will remain on your credit report for slightly less than seven years.
- if you filed a consumer proposal a notice will remain on your credit report for three years after you make your final payment. If you filed a five year proposal, but finished early and completed all your payments in three years, that means the note will be on your credit report for six years in total .
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Contact Bankruptcy Lawyers In Gilbert
Call Gilbert Bankruptcy Lawyers today to learn more about how Chapter 7 bankruptcy or Chapter 13 bankruptcy could help you manage your debt. You may qualify for a total discharge of your debt, or it may be more beneficial to reorganize your debt under a repayment plan that you can actually afford. in Gilbert to schedule a free consultation with a bankruptcy lawyer and learn more.
Gilbert Bankruptcy Lawyers
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.
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Make Your Payments On Time
The most effective thing that you can do to improve your credit score is to make your payments on time. According to FICO, payment history accounts for 35% of your total credit score and is the highest-weighted factor. However, in addition to making your payments by the due date, you also want to be sure to pay as far above the minimum payment as possible.
Ask For Payments To Be Reported To The Consumer Credit Bureaus
If youre making on-time rent payments every month, why not let them boost your credit?
Ask your landlord to report your monthly payments to the three major consumer credit bureaus Equifax, Experian and TransUnion or let companies like RentTrack help take care of it for you.
But theres a caveat: Even if the information makes it onto your credit reports, not every credit scoring model actually uses that information. Certain credit-scoring models, like FICO® 9 and VantageScore® scores based on your Experian credit report, use available rental-payment information when calculating scores, and FICO® Score XD even uses reported cellphone and utility payments.
Unfortunately, you cant control which scoring model a lender uses to check your credit but you could ask about this before you apply for a new line of credit.
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The Bankruptcy Process Can Be Financially Turbulent But When Its Done You Can Work To Steer Your Finances In The Right Direction And Start Restoring Your Credit
Depending on the type of bankruptcy you file, a bankruptcy can stay on your credit reports for up to 10 years, but Ruth Susswein, deputy director of national priorities at Consumer Action, says your credit can rebound long before that point.
Here are five ways to help build credit after bankruptcy.
How To Rebuild Your Credit After A Chapter 13
Rebuilding your credit after filing for Chapter 13 can be challenging. Luckily there are ways to minimize the impact of bankruptcy and start fixing your credit.
- Monitor your credit – Keeping an eye on your credit is an essential step in rebuilding it. It helps you track any progress you make as well as helps you quickly identify any errors and inaccuracies.
- Verify information – According to the FTC, 20% of the population has at least one error on their credit report. Inaccurate negative marks hurt your score. That’s why it’s important to verify info on your report.
- Check your credit report for errors – Before you can dispute an error, you have to find it first. You can find common errors in personal info, account status, and balance & data mistakes.
- Dispute inaccuracies – Once you have found errors, you can dispute them. This means gathering evidence, writing a dispute letter to all 3 credit bureaus, & waiting.
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Getting A Bankruptcy Off Your Credit Report
After the bankruptcy, Harzog recommends getting a free copy of your credit report from annualcreditreport.com and reviewing it to make sure the bankruptcy and debt discharge were reported accurately.
Assuming everything on your report is accurate, and youre within the seven- to ten-year reporting period, there is nothing you can legally do to have the bankruptcy removed from your report.
By law, if something on your credit report is accurate, you cant have it removed, Harzog says. The system is set up to give lenders an accurate picture of your credit history.
That said, Harzog says some companies provide a service researching and disputing errors on your credit report. But you can do that on your own, Herzog says. If you dont have time to do it on your own but have the money, you might give it a try, but you can do it on your own.
Before you hire anybody to help improve your credit score, be sure to do your research and check out the companys rating with the Better Business Bureau. There are some legitimate companies, Harzog says, but if they guarantee anything, run. Nobody can guarantee anything when it comes to your credit.
Become An Authorized Account User
To become an authorized account user, have a close friend or relative add you to their credit card account. Youre not responsible for repaying any of the money charged to the account. If the account is maintained responsibly, you will get positive marks on your credit report.
On the flip side, if he or she racks up unpaid bills, your score will reflect that. So, choose someone you would trust to make good financial decisions.
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Keep Your Balances Low
Its also a good idea to keep your balances low. Credit utilization measures the amount of credit youre using versus the total amount of credit available to you. FICO factors credit utilization as 30% of your score. So whenever possible, its best to use less than 30% of your total available credit.
Monitor Your Credit To Watch Your Progress
Monitoring your credit after bankruptcy is one of the best uses of a service aside from ID theft protection. After all, if youre not watching your credit score, how do you know if what youre doing is having the effect you want?
Besides helping you dispute negative items that bring down your credit report, SmartCredit can also help you monitor your credit report and credit scores. You can also make strategic decisions. For example, after a few months of paying off your secured credit card, has your credit improved enough to apply for an auto loan, or are you better off taking out a smaller loan first?
Youll also be able to see when youve recovered enough to do bigger things, like buy a new home. Once you have your credit score back to a level youre happy with, you can cancel your service or keep it going to make sure you maintain the highest score possible 365 days a year.
Try SmartCredit for yourself with a 14-day free trial here.
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