Finances & Money

How to Rebuild Your Credit After a Bankruptcy

Financial problems plague everyone at some point in time. Injuries, illnesses and other emergencies make paying the bills a challenge. A bankruptcy may have resulted from these situations. Don’t worry about your financial future. Bankruptcies are designed to give you a new life that’s free from excessive debt. However, you must prove that you’re worthy to hold credit once again. Explore this particular pathway that can lead to better credit through a systematic rebuild. Your future will be brighter as a result.

Keep Paying Those Bills

Rebuild your credit by simply being responsible about your current bills. You probably have no credit cards to worry about after the bankruptcy, but there are still electric and gas bills at home. Be diligent about paying these bills on time. Although they’re relatively small amounts, your history of paying them without fail does impact your credit score. The changes to your history and score will be minimal with these bills, but creditors see the effort as a step in the right direction. Place the same effort on your cable and cellphone bills too. Any debt in your name with on-time payments equates to a better credit score.

Stay Within a Budget

A critical component to rebuilding credit is staying within a budget. Take a look at your monthly bills. Compare them with your income. Ideally, spend less money than you make. Place 10 to 15 percent of your income into a savings account. Use this account when you need emergency funds, such as for an unexpected medical bill. By having savings at all times, you avoid any unnecessary borrowing in the lending industry. You want to stay out of debt, and a savings account gives you that flexibility. You can still pay off everyday bills even with that unexpected expense popping up.

Try a Secured Credit Card

It’s difficult to get credit when you don’t have a credit card. This dilemma affects every consumer. With your bankruptcy behind you, apply for a secured card. These cards are more akin to debit cards. You place a certain amount of funds onto the card, such as $500. Charge purchases with the card until the $500 is spent. Add another amount onto the card to continue using it. This responsible, credit-card use is noted by the lender. You should be able to apply for an unsecured card as soon as your credit improves with the secured-card use.

Branch Out With a Car Loan

A unique way to rebuild your credit is through bad credit car loans. These specialized purchases go through a lender who looks through your credit history. They match a loan amount that’s comfortable for your income. With an approval between you and the lender, they even find a few cars that fit the bill. By committing to a car payment that’s within your budget, you’ll quickly rebuild your credit. A car is a major purchase that reflects a lot of responsibility if your payment is current each month.

Correct Your Credit History

A bankruptcy remains on your credit report for about seven to 10 years. It can be removed after that time period. In the meantime, concentrate on correcting your credit history in other areas. Remove old, credit cards that aren’t being used anymore. Correct any balances or correspondence issues with lenders on the report. You’ll have a mixture of both positive and negative points on your report. They reflect your responsibility level. With an accurate report, you can feel confident about applying for your next line of credit without any surprises.

Pay Off Outstanding Debt

You may be recovering from bankruptcy, but try to pay off some debts that are reasonable. Paying off $100 on an outstanding bill from your plumber shows that you appreciate the service. Your credit score rises because you’ve eliminated that bill from your debt pile. Consider debts that have the highest interest rates first. Pay these off, and return to working on other debts. You’ll pay less interest as a result of this strategy.

Avoid Cosigning Any Documents

Your credit is on the mend, but there can be some hiccups along the way. Be aware of any documents that you sign after the bankruptcy. You don’t want to cosign for any loans. Although you may see this practice as a favor for a loved one, any defaults will fall into your lap. You’ll be responsible for that item listed on the document’s pages. If you don’t have the funds to cover it, you’ll be back in a financially compromised position. Politely refuse any cosigning request so that you can take care of your own debts first.

It can take several years for your bankruptcy to fade away. Lenders will see this item as a negative mark on your credit history, but it also offers a turning point for your life. Show the lenders that you’re responsible after the bankruptcy with on-time payments for outstanding debts. These efforts are worth something as you apply for a credit line in the future.

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Susan Paige

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