Raising your credit score after bankruptcy
If you have bills you cannot pay, you may have considered filing bankruptcy to deal with your financial problems. However, you may have heard that bankruptcy destroys your credit, making you ineligible for a credit card, loan or mortgage for a long time. Although bankruptcy does have a negative effect on your credit, this effect is often greatly exaggerated. In reality, if you take some steps after your bankruptcy is completed, you can rebuild your credit to respectable levels in as few as one or two years.
Mind your credit score
From the perspective of potential creditors, your credit score is one of the most important numbers about you, because it tells them how likely you are to pay back a loan or extension of credit. Since your credit score is based on your credit reports, it is important to periodically check them to make sure they are accurate. Following a bankruptcy, sometimes debts that were eliminated are erroneously still listed as outstanding on credit reports. If you report all errors to the corresponding credit reporting bureau, you can ensure that your credit score is not unfairly penalized.
Get a credit card
It may seem like a bad idea to get a credit card after you file bankruptcy (especially if it got you into trouble to begin with), but having credit and using it responsibly is one of the best ways to increase your credit score. After your bankruptcy is completed, you may or may not qualify for a traditional credit card. If you do not qualify, consider obtaining a secured credit card instead. This type of card requires you to deposit a sum into a banking account; the amount of it determines your credit limit. With responsible use, you will qualify for a traditional credit card soon.
Each month, be sure to pay off the balance in full. It is also recommended that you charge no more than 20 percent less than your credit limit. Over time, the credit reporting bureaus will note your good payment history and responsible use, raising your credit score as a result.
Don‘t neglect your other bills
Having a good payment history with your credit cards is only part of the picture. It is also important to have a good history with your mortgage, rent, utility and other monthly expenses. Credit experts say that payment history for these bills determines up to 35 percent of your credit score. If you are prone to forgetting when a bill is due each month, it may be a good idea to sign up for automatic bill payments with your bank or creditor. This way, your payment will arrive on time each month.
An attorney can help
With diligent effort, many people see their credit scores return to decent levels within a year or two. Additionally, filing bankruptcy will not exclude you from the opportunity to own your own home. The Federal Housing Administration may be able to help you obtain a mortgage in as little as one year after bankruptcy, provided that you work to improve your credit.
For most people struggling with debt, avoiding bankruptcy at all costs is a poor idea that will ultimately cause more harm to their credit scores than bankruptcy would. Since your score can bounce back soon after your bankruptcy, there is no reason to delay the debt relief it provides. The experienced bankruptcy attorneys at Gipson, Norman & Root have considerable experience helping people get out of tricky financial situations. We can use our experience to inform you of your options and recommend the best one for your unique situation.