When you’re deep in debt you can’t dig out of by yourself, bankruptcy can come in handy. But once you have your discharge, it’s time to get busy rebuilding your credit score. It’s true that filing bankruptcy will cause your credit score to dip, but if you were maxing out your credit cards and behind on bills, it was probably dropping every month already.
Once you file, the credit score free-fall stops and the rebound can begin. Fortunately, if you know the right things to do and develop a strategy, you could be well on your way to rebuilding a strong credit score and on the path to making the most of your fresh financial start. Here are six tips to consider:
1 – Confirm your bankruptcy reflects the right debts
When rebuilding your credit score, your report is ground zero. The first step is to be sure that all the debt that was part of your bankruptcy reflects that it was part of the bankruptcy case. It should show zero balance owed and with a notation that it was part of the bankruptcy. If any accounts that were in your bankruptcy show open, submit your bankruptcy docs to the credit bureau and ask for a correction. If you accidentally left a debt off of your bankruptcy petition, contact your attorney to discuss correcting the oversight.
2 - Revamp your financial habits
To rebuild your credit takes persistence, patience, and cultivating good financial habits. At the baseline, you should do things like paying your bills on time, reviewing and analyzing your credit report, avoiding maxing out credit lines, and controlling your spending. When you unload debt in bankruptcy, you’ll feel liberated and should have more cash in your wallet, but that’s not the time to indulge yourself. Spending less, saving more, and rebuilding cautiously over time is the way to go. It’s a marathon, not a 100-yard dash.
3 - Use a budget
A budget is recommended to reestablish your credit on solid footing. Never spending more than you earn is the foundation of financial success. If you’ve never set up a budget and aren’t sure how, there are many tools online to help you. There are apps and websites that are free, will help track your spending, and alert you when bills are due, and balances are low. With a budget, you know where you need to cut back and can become more conscious of your finances. It can be surprising to see where your money goes. Once you adjust to life on a budget, you can build from there.
4 - Apply for credit
Improving your credit score depends heavily on how well you can manage debt. So, you need to apply for credit. The first step you should take is to open a savings and checking account. From there, you’ll need to start applying for credit, but not all at once, not in a hurry, and only when it makes sense for your score. After bankruptcy, you might be hesitant ever to put a credit card in your wallet again, but cards are one of the top ways to rebuild your score. The key is not to see a credit card as a tool for spending but one to rebuild credit wisely, not to spend needlessly.
5 - Get a secured credit card
The first type of credit that bankruptcy filers can often get is a secured credit card. With secured credit cards, you won’t spend more than the money deposited in your account and the card issuer is more flexible on credit score because they have protection in case you don’t pay your bill. Credit unions offer secured cards, and so do most brand-name credit card companies. There will still be some minimum requirements, so it pays to shop around to make sure you meet the minimums for a secured card program before you apply. You’ll also need cash on hand for the deposit.
6 – Use cards moderately
Once you have credit cards in your wallet, secured and then unsecured, you must use the cards to keep your score climbing. However, you also don’t want to get back into unmanageable debt. Using your cards for small regular purchases and paying off in full each month will keep your card issuer happy. Putting your Netflix subscription on one card and your cell phone bill on another, etc., ensures there is card activity without spending unwisely. With a positive history, you can periodically request credit limit increases. These can help your credit score, too.
To find out more about rebuilding your credit score after bankruptcy, check out Credit Score Keys today.