After you file for bankruptcy, and your case is discharged, it’s time to start rebuilding your credit. It’s not an easy task, since your bankruptcy will stay on your credit report for ten years, and even if you pay everything on time, that bankruptcy item will stick out like a sore thumb for some lenders. Not all lenders will refuse credit, but you can expect that for at least two or three years, getting new credit will be an uphill battle.
Patience and time will be on your side. Take your time over then ext couple years to get your financial house in order. Learn to live within a budget, and start to regularly put money in savings in any amount. What other steps are there to rebuilding credit after bankruptcy?
First, you may still have some debts that were not discharged. For example, any student loan debt cannot be discharged in bankruptcy, and that will continue to show up on your credit report. It is extremely important that you pay any back amounts due, and get these debts current as fast as you can. For student loan servicers, there are also many options for someone with a financial hardship to take a forbearance, or temporarily suspend payments, or work out a more affordable payment plan. You probably have already spoken to your lender as part of the bankruptcy process, so now just take every step to make these payments current. This will be one of the items that will show up on your credit report as being paid on time.
If you are still in your home, your mortgage payments will also show up on time. In Chapter 13, and sometimes Chapter 7, debtors will keep their home and continue to make payments. Be sure, again, that all of these payments are current. These items will be additional good credit history on your report going forward.
A tougher one is getting unsecured credit. In this financial environment, lenders are not as willing to provide credit cards to high risk customers. Many customers even with good credit are having their interest rates raised and their balances cut. While there are some products on the market such as a bankruptcy credit card to use for rebuilding your credit, the fees and costs can be higher than other borrowers pay, so make sure you’re calculating the cost and benefit of using these products to help your credit.
Some banks will work with you to set up a secured loan for rebuilding credit. For example, you would open a CD or savings account for a certain amount, say $1,000, then get a loan secured by that savings account. You make payments on the loan regularly, the payments appear on your credit report, and this helps create good credit history as well. Not all banks will offer this, and some will only work with you a year or two after bankruptcy, but it’s definitely a way to build your credit back up without incurring ridiculous fees and charges. best of all, you get your deposit back once the loan is paid off!
Consider avoiding getting new credit at this time of your financial life. Start trying to live only with a debit card. Cut back on your spending: reduce costs on some bills, like switching your phone service or finding affordable auto insurance, and limit your unnecessary spending. Then, put the money into a bank account that you once would have spent on things you couldn’t afford – plus interest. You’re now in a unique position to make a fresh start, and using credit wisely at this point is the key to rebuilding your credit.
