How Do I Rebuild My Credit After Bankruptcy?
June 1, 2009
Many individuals who file for bankruptcy already have heavily damaged credit due to late payments, repossessions, foreclosure proceedings and judgments. In this case, one of the factors that has driven down that person’s credit is a very high debt-to-income ratio. A bankruptcy may actually help such a person raise his or her credit score by eliminating part of the debt that was throwing off the ratio.
Although a bankruptcy will appear on someone’s credit score for up to 10 years, one’s credit score can be raised almost immediately after a bankruptcy discharge by implementing healthy credit and budgeting habits. There are several things that one can do to rebuild credit over time.
- You may be tempted not to use any credit at all lest you fall back into bad credit habits. This may be necessary if you know that you lack the self-control to use credit responsibly. But if not, you should be aware that your credit score will not go up unless the credit beaureaus see some evidence of responsibly held credit. This is why it is a good idea to get one credit card whose balance you paid off every month. This will help raise your credit score.
- Two types of credit are needed to bring up the credit score. One must develop a history of making timely payments on both “installment credit” accounts and “revolving credit” accounts. “Installment credit” means long-term set payments on a credit account like mortgage or car payments. “Revolving accounts” involve payments on accounts whose monthly payments are determined by one’s current balance, like credit card payments and home equity line of credit payments.
- If you have car payments or a mortgage after bankruptcy, one should consider developing credit using a credit card. Sometimes one of a debtor’s credit card companies may allow that person to keep a credit card after bankruptcy, in exchange for an agreement that some of the debt from that card will carry over after the rest of his debt is discharged. If you pay the balance of the credit card every month, this will slowly improve your credit rating.
- Alternatively, you can build up your credit score by getting a “secured credit card.” This is a credit card with your bank that is secured by an account balance to ensure that the lender can collect on any unpaid bills.
It goes without saying that one must leave behind all of the old habits that lead to high debt in the first place. One must make a budget and live within it. Sometimes this may involve taking on an additional job to make sure that all of one’s financial obligations are met on a timely basis.You may contact our office for a free consultation with an experienced bankruptcy attorney with regard to whether this or another type of bankruptcy may be appropriate for your situation.
Picture courtesy of AskMrCreditCard.com