Are you about to file bankruptcy but afraid of how it affects your credit report? Some have been misled that their financial future is ruined after filing bankruptcy and that restoring credit score takes around seven years. In truth, bankruptcy actually exerts a positive effect by having your outstanding debt reduced to $0. Thus, the best time to begin improving your credit is right after your bankruptcy case.
Rebuilding credit after getting that fresh financial start can be done in under two years even though you start off with a bad credit score of 200 or below. Different methods of credit repair can be done to reach a good credit rating score of 600 and above.
7 Steps in Repairing Credit Post-Bankruptcy
Below are some methods of improving credit which creditors will look for after you declare a Chapter 7 bankruptcy. One thing tying all these options together is the idea that you want to prove to creditors how capable you are of maintaining an income to sustain your loans and give regular monthly payments for what is owed.
- Set a credit goal. Before starting off with your credit improvement journey, note down your current credit score and consider this as your baseline when tracking your progress towards your credit repair target rating.
- Continue paying off remaining debts. If you have any outstanding student loans, unpaid child support, or alimony, these debts are not discharged by the court under bankruptcy laws. However, paying back your balances post-bankruptcy helps boost credit repairs as it lowers the debt-to-income ratio.
- Create a doable budget. If you want to prove to lenders that you are doing your best in avoiding a debt spiral, spend only within your means. Keep track of where your income goes and make sure to allot a good portion to pay your bills, mortgages, auto loan installments, emergency fund, savings, among others.
- Apply for a credit card. Consider getting a secured credit card to keep you from overspending (as is the case with unsecured credit). This is because there is a needed cash security deposit placed on the card from which your purchases are being charged. Additionally, use your card on a regular basis and pay off more than the minimum monthly payment on time. You may also consider getting retail cards and a gas card since paying your balance from small purchases also helps to build creditworthiness.
- Have your loans co-signed. A bank representative or creditor may be more likely to approve a loan or lend you money if you have a cosigner who will back you up for your loan payments should you fail to pay back in time. Expect to face high-interest rates and fees after a credit history of Chapter 7 or Chapter 13 bankruptcy. If your loan is rejected, consider borrowing from unions or non-profit groups and make sure to not have any missed payments to keep your record clean.
- Maintain a savings or checking account. The chances of getting a secured line of credit become higher when you request it from the bank which manages your accounts since you are their client.
- Check that payments are reported to the credit bureau. When your positive activity is not being reported, you cannot expect to raise your credit score. It would be a good practice to check with your lenders if they are reporting to credit bureaus.
If you have any more questions about how credit is affected by bankruptcy, or have any doubts about filing your bankruptcy case, get in touch with an experienced bankruptcy attorney from Grafton Firm, LLC. Our Maryland bankruptcy lawyers will be able to address any financial concerns that debtors and credit repair enthusiasts may have. Contact us at (410) 505-0414 for a free consultation.