Whether you are filing Chapter 7, Chapter 13 or any other form of bankruptcy, many people worry about the effect bankruptcy will have on their credit, but their credit is often already severely damaged by debt. If you have a high credit score, filing for bankruptcy can have a substantial impact on your credit. If you have a low score already, however, the difference may be negligible.
Regardless of the initial impact bankruptcy has on your credit score, it will make it more difficult to repair or rebuild your credit moving forward. With patience and a sound plan, however, you can effectively repair your credit history to qualify for home loans, auto loans, and more.
Pay Your Bills On Time
Perhaps the single most important factor in rebuilding your credit is to pay your existing debts and bills on time. Following the completion of a bankruptcy filing, the credit bureaus will pay close attention to how frequently you pay your remaining debts, including mortgage payments and car payments. Even rent payments are tracked by some of the major credit bureaus.
Get a Secured Credit Card or Loan
Once you’ve been able to establish some savings, you can usually get a secured credit card or loan. This allows you to put up cash as collateral, and receive a credit line that is equal to the collateral. By charging a bit every month, and paying it off BEFORE the bill is due. Do not confuse secured cards with prepaid cards – although similar, most secured cards will report the activity to the credit bureau, which is crucial when rebuilding credit.
Keep in mind that even with collateral, you still may not be able to qualify with some banks, especially if your bankruptcy happened in the last year. If this is the case, just continue to be financially responsible and try applying again in a year.
Stick to Your Budget
A comprehensive household budget is crucial for anyone, but it can be particularly helpful when reorganizing your finances after bankruptcy. You should try to create a budget in which you live below your means, which will allow you to save money for a rainy day. This can also help you make sure you are able to pay off your credit cards on time.
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