Fix your credit after bankruptcy.
Image Source: Flickr User velacreations
After bankruptcy, your main job should be improving your credit score. Your credit score affects many aspects of your life, such as how much you pay for car insurance, whether you can rent an apartment, how much utilities cost, and whether you’ll have to pay a deposit to get utility services. Here is a look at five simple ways to improve your credit score.
#1 Correct Any Errors
A Federal Reserve Bank study found that roughly 20% of consumers have errors on their credit reports. After bankruptcy, it’s common for accounts included in the bankruptcy to not reflect properly. They should show a zero balance and that they were part of your bankruptcy petition and discharge.
If any accounts show a balance still owing, you can request a correction. The same Federal Reserve study showed that half of the consumers that got a correction saw a 20-point bump in their score, and more than 5% saw an even larger bump in their score from the correction.
#2 Decrease Utilization
If you’re already working on boosting your credit score after bankruptcy and have one or more credit cards or other revolving lines of credit like a store card, then utilization is critical. If you have a credit card with a $500 line of credit and a $100 balance, that’s 20% utilization.
To please your card issuer and get ongoing credit line increases, you need to use your cards. But you can use and pay off in full each month so your utilization remains at close to 0%, which is better for your credit score. Use does not have to equal utilization! Don’t charge if you can’t pay off in full each month.
#3 Keep Accounts Open
When you first start rebuilding your credit, you typically have to start with secured credit cards and then move on to mediocre unsecured credit card offers, and then, finally, you can get a good, unsecured credit card. Once you get a “good” credit card, you might decide to shred your old secured credit card to celebrate.
Closing a secured card account could hurt your credit score in two ways. First, it lowers your total available credit lines, which negatively affects your utilization calculation (the percent of credit you’re using). Second, it lowers your average age of credit. Keep old accounts open and use them just occasionally.
#4 Pay Your Bills On Time (and in Full)
You may prioritize one bill over another if your money is tight. If you have to, first pay bills that report to the credit agencies, such as your credit cards and auto loan. But bear in mind that even bills that don’t normally report to the credit agencies could impact your credit score.
For example, if you don’t pay your cable bill and your account is closed with a balance due, then this could result in a collections account. That account can then be reflected on your credit which, in turn, will drop your overall score. Paying off the account with a negotiation that includes removing the collection account from your report can help.
#5 Occasionally Open New Accounts
In addition to keeping older accounts open, occasionally opening new accounts will boost your score. If you add a new credit card every six months or so, it can boost your score so long as you don’t run up balances. The highest credit scores come with lots of available credit that is NOT used.
Once you hit a good credit score, opening a new account every year or so can help keep your score healthy. Get the cards, use them only occasionally, and pay off in full to keep your credit score at an optimal level.
Rebuilding credit after bankruptcy can be tricky, but following these five steps will give you a running start on getting a better credit score and achieving the solid financial future you deserve.
If you’re confused about how to rebuild your credit score after bankruptcy, Credit Score Keys can help.