As a bankruptcy attorney, I often see clients who are struggling with low credit scores and are looking for ways to improve their financial situation. While bankruptcy can be a helpful solution for getting out of debt and starting fresh, it can also have a significant impact on your credit score. Nevertheless, and although it does have an impact on your credit score, this does not mean that you will not be able to build credit after bankruptcy. In fact, not only is possible to rebuild your credit after bankruptcy and get back on track financially, it is recommended to rebuild your credit. Here are some steps you can take to fix your credit after bankruptcy:
Check your credit report
After filing for bankruptcy, it’s important to check your credit report to make sure all of the information is accurate. You are entitled to a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once a year. You can request a copy of your credit report at annualcreditreport.com[1].
Once you have your credit report, carefully review it for any mistakes or errors. This could include accounts that were discharged in bankruptcy but are still listed as open, late payments that were actually on time, or incorrect personal information. If you find any errors, you can dispute them with the credit bureau. It’s important to do this as soon as possible, as errors can significantly impact your credit score. Once these errors are addressed, you will see how much of an impact it will have on your credit score the following month.
Pay your bills on time
Although often overlooked, paying your bills on time is one of the most important factors in determining your credit score. Late payments can stay on your credit report for up to seven years and can significantly hurt your credit score. This is because, when you are extended credit, one of the main factors that will be reviewed is your ability to make timely payments. If your history demonstrates that you’ve defaulted or have historically late on payments, your chances of obtaining credit is highly diminished. To improve your credit score after bankruptcy, it’s important to make sure you pay all of your bills on time, every time.
If you’re having trouble remembering to pay your bills on time, you can set up automatic payments or use a calendar to help you keep track. You may also want to consider setting up alerts or reminders to help you stay on top of your payments.
Get a secured credit card
After bankruptcy, it may be difficult to get approved for a traditional credit card. However, you may be able to get a secured credit card from your bank. A secured credit card is a type of credit card that requires a security deposit, which becomes your credit limit. By using a secured credit card responsibly, you can rebuild your credit and eventually graduate to a traditional credit card.
To get a secured credit card, you’ll need to provide a security deposit, which is usually equal to your credit limit. For example, if you want a secured credit card with a $250 credit limit (because this is what you spend on gas every month), you’ll need to provide a $250 security deposit. To build your credit using a secured credit card, you want to utilize all of the available funds and at the end of the month, pay it all off in full. Maxing out the credit card and paying it off in full at the end of the month will really help you build your credit rapidly. Therefore, make the balance manageable so you can pay it off at the end of the month, and use the credit card on expenses that remain the same every month (i.e. gasoline) so as to not go over the budget.
Consider a credit-builder loan
A credit-builder loan is a type of loan specifically designed to help rebuild credit. With a credit-builder loan, you borrow a small amount of money, which is deposited into a savings account. You make monthly payments on the loan, and once it’s paid off, you get the money in the savings account.
Credit-builder loans can be a good option for rebuilding credit after bankruptcy because they are designed for people with low credit scores. They can also help you save money in the process.
Don’t apply for too much new credit at once
After bankruptcy, it’s important to be careful about applying for new credit. When you apply for new credit, it will temporarily lower your credit score. This is because each time you apply for credit, the lender will do a hard inquiry on your credit report, which can negatively impact your score. To minimize the impact on your credit score, try to avoid applying for too much new credit at once. If you have no choice and need to apply for credit, try to choose a company that will qualify you based on a “soft inquiry” that has little to no impact on your credit score. Second, try to spread out your credit applications over a longer period of time. This will give your credit score time to recover between inquiries.
Consider a credit repair company
If you’re having trouble fixing your credit on your own, you may want to consider working with a credit repair company. These companies can help you dispute errors on your credit report and negotiate with creditors to remove negative information. However, it’s important to do your research and choose a reputable company. There are many scams out there, so be sure to check with the Better Business Bureau and read reviews before choosing a credit repair company.
Do your own research
I give the above examples based on my own experience having worked in the bankruptcy field for the last 12 years. However, there is no cookie cutter answer. Although I always recommend these options to all of my clients coming out of bankruptcy, you have to find what will work for you and your post-bankruptcy financial situation. As such, I’ve compiled a list of resources that can help you and get you on your way to fixing your credit score post-bankruptcy:
Federal Trade Commission (FTC) - The FTC is a government agency that protects consumers from deceptive and fraudulent practices. They have a helpful guide on how to improve your credit score, which includes tips on paying your bills on time, managing your credit utilization, and disputing errors on your credit report. You can find the guide at https://www.consumer.ftc.gov/articles/0151-improving-credit-score
U.S. Department of Housing and Urban Development (HUD) - HUD is a government agency that provides housing and community development assistance. They have a helpful resource on understanding and improving your credit, which includes information on the factors that impact your credit score and strategies for improving your score. You can find the resource at https://www.hud.gov/topics/credit_scores
Consumer Financial Protection Bureau (CFPB) - The CFPB is a government agency that promotes fairness and transparency in the financial marketplace. They have a helpful resource on improving your credit, which includes tips on paying your bills on time, managing your debt, and protecting your credit from fraud. You can find the resource at https://www.consumerfinance.gov/consumer-tools/improve-credit-score/
Federal Student Aid is a government agency that provides financial aid for education. They have a helpful resource on understanding and improving your credit, which includes information on the factors that impact your credit score and strategies for improving your score. You can find the resource at https://studentaid.gov/understand-aid/types/loans/credit/improve-credit-score
Credit Counseling Services is a nonprofit organization that provides credit counseling and education to consumers. They have a helpful resource on improving your credit score, which includes tips on paying your bills on time, managing your credit utilization, and disputing errors on your credit report. You can find the resource at https://www.creditcounselingservices.org/consumers/credit-repair/
If you are in debt, and whether you need someone to explain how bankruptcy works and how you are able to rebuild your credit after bankruptcy, we are well qualified as a full-service law firm for people in this county and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, Union County, and Sussex County. Call us today at 973-554-9827 or toll free 973-696-8391.
[1] https://www.annualcreditreport.com/index.action
