Rebuilding credit after bankruptcy won’t be easy but it is definitely possible. In fact the best way to start is prior to you becoming bankrupt. You need to speak to your bankruptcy attorney to check that this suggestion will work in your particular circumstances not to mention where you live. If you have an OK credit score you should apply for a credit card with a totally different company to the ones you currently owe. Open the account but do not use it. As you don’t owe anything on the credit account you shouldn’t have to declare it on your bankruptcy filing nor should you have to advise the financial institution. Although bankruptcies are a matter of public record, not all banks will check on existing account holders. Then when your Chapter 7 liquidation has been finalized you can start to use the credit card account but only put small amounts on the card and pay it off straight away. This will help to build up your credit score as you are using your card responsibly.
Regular savings is key
Second tip is to start a savings account once your bankruptcy has been finalized. Set up a standing order into this account and save regularly over the next months and years. It is amazing how often people forget this step but showing a record of savings can help to offset a lot of the effects of having poor credit. This is particularly true if you hold your savings account at a bank that you later use to borrow money from.
Pay bills on time
Always pay your bills on time and never ever miss a payment. The bankruptcy is on your credit record for a set period of time and there is nothing you can do about that. But from now on you want a blemish free report. Keep an eye on your credit report to make sure that there are no errors or unusual transactions. You don’t need any more problems.
Which type of bankruptcy should you file?
There is some argument over which is the best type of bankruptcy to file with regard to the impact on your credit score. Some people believe filing for Chapter 13 is better than Chapter 7 but we are yet to be convinced. Under a Chapter 13 you are tied in making repayments for three to five years whereas under a Chapter 7 the slate should be wiped clean. All your debts will be gone and you get to start over with hopefully more cash in your pocket. Listen to your attorney and take his or her advice as they are the experts in this area of law and also in the way your State operates with regard to bankruptcy. Some are more forgiving than others!
Don’t apply for new credit
Don’t apply for new credit. Too many new applications will adversely impact even the highest credit score but for those with a poor credit rating it will only make things a lot worse. Get into the habit of operating in cash and only buy stuff when you can afford it and not before.
Consider a pre-paid credit card but only if really needed
If you really need a credit card and didn’t think to open an account prior to going bankrupt or were unable to do so, have a think about a prepaid credit card. With these cards you have to deposit the money you could spend as security and you are only allowed to spend up to whatever limit has been set on the card. The interest rates are high and there may be other charges as well such as an annual fee. These cards are best avoided if at all possible. You really don’t want to pay out any more money in unnecessary charges.
Don’t use a credit repair agency
Do not use a credit repair agency as they can’t do anything other than what we have recommended above. They often suggest that clients apply for credit using a slightly different social security number. Or they may suggest you start up a new social security account. Both these tricks are illegal as it is fraud and it really is not worth getting into trouble with authorities. The Judge won’t care who advised you to do it and you could find yourself doing jail time.
Rebuilding credit after bankruptcy isn’t the only thing that is important
Rebuilding your credit score is obviously important but it is not the biggest issue you will face after bankruptcy. You need to rebuild your self confidence and self belief too. As part of your bankruptcy filing you will have had to attend a financial management course. Take this opportunity to really master your finances so that you never face the prospect of filing for Chapter 7 or 13 again.
These tips for rebuilding credit after bankruptcy do work but the best lesson of all is to learn how to manage your money. That is the only way to financial freedom, something we should all be aiming to achieve.