Credit Score After Bankruptcy
Bankruptcy, a curse to your financial records, does reduce your credit score to a great extent. However, the good news is that it is possible to get credit after filing for it. You need to know how to do it. No doubt, bankruptcy wrecks your score, and you would suffer its consequences such as not being able to purchase things on credit. You can still qualify for mortgages and loans with excellent terms and rates long before the red mark is removed from your credit report. You can improve your score after bankruptcy by following a few simple steps, which are mentioned below:
Everything is Temporary
If you are bankrupt, you need to remember that nothing is permanent and nothing remains forever. Legally speaking, a bankruptcy can remain on your credit rating for as long as 10 years. However, the effects of the same may start diminishing from the day your case is closed. But, then you need to be responsible with credit, so pay your bills on time. Moreover, you will have to start using it judiciously, so that you can build up your score. A good option can be paying your bills through cash.
Getting Your Credit Report Right
One of the most common difficulties faced by the people who would like to improve their score is that these reports show their accounts as still overdue and open, when in reality, the obligations were closed as a part of bankruptcy. If you face the same problem, you should bring this to the notice of the credit bureau and insist that they be accurately reported. Your credit score is entirely dependent on this report, so any errors can have a damaging effect.
Try for a Secured Card
If you want to rebuild your credit score in such a situation quickly, you should try to get a credit card. However, you would have difficulty qualifying for an unsecured card after bankruptcy. So, the best answer to that would be to apply for a secured one, in which the credit limit would be equal to the amount you deposit with the bank. Usually, the deposit amount would be about USD 500.
It may seem a small amount, but the basic purpose of getting a card at such a point is to improve the score. Ensure that you don’t use all of it as it would hurt your score again, and don’t over withdraw so that you are able to pay off your balance every month.
Don’t just apply for a secured card; look for the one that has no application fee. There are some secured cards, which charge huge annual and upfront fees, which are not required for building credit. You would not do any good to your score until the history of your payments are being reported to the respective bureaus. Ask the issuing bank if your payment history would be reported to all the three rating agencies. After you have paid your bills on time for a year to 18 months continuously, convert them to an unsecured credit card.
Try Getting a Loan
Student loan is the best bet in such case as these loans are not discharged when you file for bankruptcy. Pay all the installments on time, ensuring that you pay them every time. Moreover, a thumb rule is that you should try to pay more than the amount you owe, as and when possible. On-time payments, coupled with paying more of your debts, are some of the best ways of serving the underlying purpose. If you don’t have a current student loan, you can opt for a car loan to rebuild your credit; however, be prepared to shell out high rates first.
You will be required to wait a few years to get approved for these loans. If you keep paying your installments on time to repay the loan, as and when granted, for about a year to year and a half, you can refinance it and purchase another one at a lower rate of interest. If you opt for this route, make sure that you pay a big down payment besides choosing one, which does not have a prepayment penalty. In the meantime, you must ensure that you pay your bills on time to improve things with your ratings.
Thus, by making your payments on time and not overdrawing more than the limit, you can improve your credit score after bankruptcy. These are the necessary steps you should follow so that you get into the good books of the respective bureaus.
