Filing for bankruptcy doesn’t mean that your financial life is over. In fact, it can provide a fresh start and allow you to build a better financial future than you’ve ever had.
Learning how to rebuild credit after bankruptcy can help you take steps you need to avoid similar problems in the future. Preparing for those future problems will help ensure that you never have to face bankruptcy court again. Below, we discuss 4 steps to getting on the right financial path. To learn more about how bankruptcy can help you get in control of your finances, contact Andrade Law Office, LLC today.
Step 1: Repairing Credit
Unfortunately, most financial distress (including bankruptcy) will create negative marks on your overall credit report. Whether it’s missing payments, overdrawing your credit limit, or taking other actions related to bankruptcy, these will appear on your credit file.
Fortunately, once your bankruptcy is complete, these negative remarks will more than likely be removed from your report. Any overdrawn credit limit should be zeroed out, and any collections account will be closed. In the end, your account status should reflect the word “settled”.
However, sometimes creditors are a little slow in updating this type of info. In turn, that slowdown could hurt all your efforts towards rebuilding your credit. So, above all else, the first thing to do after bankruptcy is to get your credit report cleaned up through credit correction.
Step 2: Obtaining a Secured Credit Card
After bankruptcy, you may be hard pressed to get a new credit card. But in order to build back your credit, you need that new line of credit.
You must use a new credit account in strategic ways to slowly re-build your credit score. Luckily, creditors offer secured credit cards that high-risk borrowers can use to build better credit.
Here’s how to rebuild credit after bankruptcy through a secured credit card:
- Apply online for a secured credit card
- Leave a deposit (the credit card company will require this of you when trying to open a new line of credit)
- Strategically purchase only items with the card that you can pay off
- Pay off as much of your debt as you can on time every month
Most secured credit cards offer a credit line that equals the deposit. Never leave a balance on your card that uses 30 percent of the total balance. Ideally, if you can pay off your entire debt each month, then you should be able to build your credit back faster.
Step 3: Diversifying With Loans
In regards to your credit score, the types of loans you have matters. Only using credit cards will show that you’re not keeping a good balance of debt. So, the next step to rebuilding credit after bankruptcy is to take out a small loan that you can easily pay back.
In most situations, this means taking out a small personal loan. Use the money you receive on nearly anything — whether completing home repairs, paying off important purchases, or even diverting the money to an investment. If you do this, not only are you building a better credit report, but you’re also creating a better financial outlook as well.
Just remember that no matter what kind of loan you take out, or what you use it on, make sure to always pay your bills on time each month. If your loan does not have an early repayment penalty, then consider even making bigger payments when you have some extra money. Once one loan is paid off, take out another loan and diversify to build a better payment history on your credit file.
Step 4: Monitoring Your Credit
If you do not monitor your credit score, how do you know if the steps you’re taking to rebuild credit are working?
Sign up for a credit monitoring service to see how every step you take affects your credit score. For instance, you can monitor a few months worth of secured credit card payments to see if you can now qualify for an auto loan. Or, perhaps you now only qualify for a small personal loan. Take out that loan, pay it off, and monitor how that transaction affected your credit score.
Speak to a West Chester OH Bankruptcy Attorney
To learn more about how to rebuild credit after bankruptcy, speak to a knowledgeable West Chester OH bankruptcy attorney. Contact Andrade Law Office, LLC today.