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Rebuilding Credit After Bankruptcy Is Easier Than You Might

Worried that bankruptcy will ruin your credit score forever? It’s a widespread myth that bankruptcy does permanent damage.

In reality, the most damaging decision you make may be to not file bankruptcy.

While it’s true that bankruptcy will leave a mark on your credit report, rebuilding credit after a bankruptcy case is definitely possible. In fact, most of our bankruptcy clients are surprised to receive credit card offers and discover they’re able to qualify for loans shortly after filing.

If you take the right steps during and immediately following your bankruptcy case, you can quickly put the past behind you and work toward a more secure financial future – and that will translate into better terms, lower interest rates, and less chance that you’ll ever fall into the debt trap again.

If you’re considering bankruptcy, here are five important ways to ensure you get the most out of your filing.

Fix Credit Report Errors

Credit report errors are common, but they can wreak havoc on your credit score when unaddressed. If you already have poor credit caused by large or delinquent debts, you can’t afford to lose precious points for correctable mistakes. Make sure to get your free annual credit report copy at annualcreditreport.com, and examine it with a fine-toothed comb.

Common mistakes include misspellings or other inaccuracies that could mix up your debt with someone else’s, bad debts more than seven years old that haven’t been removed, accounts that are duplicated, and more. If you spot anything that doesn’t sound right, report it to the credit reporting company in writing and contact the source of the error.

Consider a Secured Card

Getting a new credit card after bankruptcy may not sound like a good idea, but it’s imperative to your campaign to begin building “good” credit. Many credit card companies do indeed approve customers who have recently filed for bankruptcy, but if you’re not having any luck – or if you don’t trust yourself with a standard credit card – a secured card can be a helpful alternative.

Secured cards work similarly to prepaid cards in that you can only spend up to the amount you deposit to the card. But unlike prepaid cards, which don’t report to credit bureaus (and often come with fees), secured cards will create a history of your new, responsible credit activity –thus raising your score.

Make Timely Payments

This should go without saying, but if you’re going to take the time to go through bankruptcy, make sure to keep up with your payments. Even if you file for Chapter 7 bankruptcy, in which most of your debts could be discharged in entirety, you’ll still need to stay current on any debts not included in the bankruptcy, such as student loans.

Use Credit Carefully

Keeping a close eye on how you’re using credit is essential to not only improving your score, but to avoiding future financial pitfalls. After all, bankruptcy isn’t a quick fix; the whole point of filing is to break free from debt so you can move forward. Whether you use a secured or non-secured card after bankruptcy, make sure to make your payments on time each month. If you can pay your balance off in full, even better.

Of course, it’s not just about how much of your balance you pay each billing cycle. The amount you charge also matters. Consumers with the best credit scores maintain low balances. If you want to rebuild credit, try to keep charges to no more than 30 percent of your available limit. And don’t go crazy applying for multiple credit cards, as lenders are wary of consumers who seem desperate for credit. One or two cards, used wisely, should be sufficient for getting your credit back on track.

Don’t Buy into the Credit Repair Hype

After you file for bankruptcy, you might be understandably anxious to boost your score. But whatever you do, don’t fall for companies that promise to rebuild your credit in a short amount of time, or to erase negative information from your credit report for a fee.

If it sounds too good to be true, it is. No company has the ability to wipe out your credit history or improve your score overnight; the only way to boost your credit is through responsible credit use over time.

Remember: You don’t need to pay anyone to do what you can do yourself for free through discipline and time. It’s very possible to achieve a credit score of over 700 while still showing a bankruptcy on your report. Ultimately, lenders care less about your past and more about your future. With the right bankruptcy plan, you can ensure that future includes healthier finances.

Resources:

How to Rebuild Your Credit After Filing for Bankruptcy, by Roman Shteyn, Fox Business

How to Repair Credit After Bankruptcy, by LaToya Irby, About.com: Credit/Debt Management

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