Tips for Rebuilding Credit after Bankruptcy
One reason many consumers fear filing for bankruptcy is that they know their credit score will take a big hit. Of course, these consumers are exactly right. Depending on your score before you file, you might see a 200 point drop after bankruptcy. Nevertheless, consumers can begin rebuilding credit quickly after their discharge if they follow these tips.
Consider a Secured Credit Card
It is unlikely you will be approved for a regular unsecured credit card soon after bankruptcy. However, you might start by getting a secured card. This type of card is secured by money you have in a bank account. For example, if you have $1,000 in your bank account, you can get a secured card with a $1,000 limit. The security decreases the lender’s risk because they can seize the cash in the account in the event you default.
If you obtain a secured card, remember to use it responsibly. Do not go over your credit limit and always pay off your bill in full before the due date. Also make sure you get a secured card with a lender that reports to the credit bureaus.
Build an Emergency Fund
People go bankrupt for all sorts of reasons. Nevertheless, a common theme is that many consumers do not have any savings in case an emergency strikes. When their car breaks down or they suffer a medical emergency, they have nothing saved and must turn to credit cards or personal loans to stay afloat.
Begin building an emergency fund by contributing a percentage of your monthly paycheck to your savings account. Start small, with whatever you can afford, but look for ways to save. Brew coffee at home and cancel an unused gym membership, then funnel all extra money to your emergency fund. To reduce the chance that you will dip into your savings, open an account at a bank 10 minutes away from you.
Monitor Your Credit
As time passes, the effect of your bankruptcy should decrease. As a result, your score should rise, especially if you use your secured credit card smartly.
To track your credit score, sign up for a free service like Credit Sesame or plunk down $20 and buy your FICO score. Don’t get hung up on the precise score but check to see that it is rising slowly. As your score increases, you can try to get a regular, unsecured credit card with a bank that is willing to take a chance on you. You might also obtain a small personal loan. Of course, always use your credit responsibly, otherwise you will end right back in bankruptcy court.
In Financial Distress? Consult with a Lawyer at Nowack & Olson
Rebuilding credit is not easy. However, many consumers have successfully lifted their scores into the mid 600s after a few years, and some have continued to soar upwards. Rebuilding credit requires persistence and smart choices.
If you are considering a bankruptcy but want more information, reach out to a South Florida bankruptcy attorney by calling 866-907-2970. At Nowack & Olson, we have helped thousands of consumers seek a fresh financial start.