Bankruptcy Aftermath: Restoring Your Credit
Most of my job is helping people get through the bankruptcy process and out the other side in one piece. Once we have gone through the courts and established a plan, my job is done – but yours is not. One theme about bankruptcy you will find when talking to me or going through this website is that bankruptcy is not the end of the world, and for many it can be a new beginning.
After bankruptcy, the first priority of many is restoring their credit rating, but you need to be smart about doing so. The following tips will help you to re-establish your credit rating and give you a fresh start in your financial life.
Find a Secured Credit Card
A secured credit card is a type of credit card where you pay a deposit up front, and the amount of that deposit acts as your credit limit. From there the credit card functions just like a normal card. You purchase goods and services with it, and pay back the debt every month. When shopping for a secured credit card make sure that you find one that reports to the three major credit bureaus! If the card doesn’t report, there is no point.
The good news is that secured credit cards often report payments to credit bureaus in the same manner as an unsecured card, so as you make payments your credit rating will improve.
Make a Budget
Financial advisors suggest making a budget and sticking to it for everybody, but it becomes especially important for those who file for bankruptcy. A budget will help you keep accurate track of your cash flow and understand where your money is coming from and where it is going every month. This will help you plan for how much credit you can afford to pay off and keep you from falling into the same problems that brought you to bankruptcy in the first place.
Evade Predatory Lenders
There are industries that build their business model on what is known as predatory lending. The most common form of predatory lending you may be aware of are payday loans. A payday loan is a bad investment however, as the interest rates on these loans are absurdly high – with some going as high as 600%. The truth of the matter is – payday loan should be synonymous with “loan shark” in your mind, as they will break the legs of your financial future if you go to them and slip up on making repayments.
Check Credit Reports After Bankruptcy
Credit reporting is one of the things that tends to get muddled during the bankruptcy process. As such, it is essential that you go through your credit reports every year and make an effort to clear any errors. Paid debts, discharged debts, and closed accounts appearing on your credit report can hurt your credit score. Worse, sometimes duplicate debts will show up and create problems for you. Remember that running your credit report too often can also ding your credit rating, so stick to once per year.
Above All: Stay Positive
This may seem a little hollow, but in all seriousness – stay positive. Bankruptcy is not the end of your world financially, something we always emphasize. Consumers can and frequently do recover from bankruptcy. Even though it takes ten years before the filing falls off your report, you’d be surprised at the willingness of even legitimate lenders to open up new lines of credit to you if you’ve recently established a good financial history.
Lenders understand that things happen – especially after the recent recession – and are thus more concerned with what you’ve been doing for the past couple years rather than what happened 8 years ago. You will recover, time heals all, and you will be able to go forward with a brighter future after this.
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