Essential Guide to Rebuilding Credit After Bankruptcy

Essential Guide to Rebuilding Credit After Bankruptcy

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Filing for bankruptcy is never an easy decision, but for millions of Americans each year, it is the only solution for dealing with crushing, otherwise unpayable debt. Bankruptcy gives debtors a chance to push the reset button on their finances and gives them an opportunity to escape past financial mistakes and start anew.

Unfortunately, this reset can have far-reaching consequences on your financial future.

Bankruptcy will limit your access to credit and will make it much more difficult for you to obtain new credit, particularly for big-ticket items such as home mortgages.

Because of this chilling effect on your ability to obtain credit, the very first critical step you should take after declaring bankruptcy is to rebuild your credit rating.

The most important thing to understand is that bankruptcies do not happen overnight, and neither will be rebuilding your credit. Rebuilding your credit is a process that will take time, patience, and significant financial discipline.

There are no shortcuts to rebuilding your credit. Understanding this can help you avoid the pitfalls of credit repair services or other scams that promise quick-fixes.

Here are five important steps you can take to help your credit after bankruptcy:

Begin with the basics: The first, most important step in rebuilding your credit is to start by getting a firm grip on your income and your expenses. Create a budget, and make sure you stay within your budget. This simple step can help you see where your money is going, and help you determine if you are spending your money wisely. This will help you develop essential money management skills.

Obtain a secured credit card: One of the strange paradoxes of credit is that in order to get credit, you have to have a good track record of using credit responsibly. A secured credit card is a credit card in which the credit line – and potential debt – is secured by a deposit held in escrow by the issuing financial institution or bank. This deposit, which generally equals 50 to 100 percent of the credit line assigned to the card, is a guarantee or ‘good faith’ money that ensures that the card issuer can recover at least part of the debt if you fail to pay.

 

Pay off credit cards monthly: Never charge more on your credit cards than you can afford to pay off each month. Carrying a balance from month-to-month can quickly grow into a debt you cannot afford to repay. A good rule of thumb is to never charge more than 30 percent of the available credit line each month. For example, if your credit card has a $500 credit line, you should never change more than $150 each month, and only then if you can afford to pay it off at the end of the month.

Pay all of your bills on time: The most critical part of rebuilding your credit to make sure you pay every single bill on time, every time. some banks will keep communicating to you via letters. If you happen to be in Santa Monica, then you may need to check Santa Monica CA, Post Office Hours to ensure you receive letters on time.

Car loans, utility payments, mortgages – each and every one of them must be paid on time, every month, in order to rebuild your credit. At this crucial stage, a single derogatory comment on your credit report or a collections action over an unpaid debt could have devastating effects on your efforts to rebuild your credit. One derogatory comment could easily undo weeks or months of hard work of rebuilding your credit.

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