Once you’ve accrued enough debt, it doesn’t take long for your credit score to suffer. When the time comes to make things right, filing for bankruptcy can be a necessary evil to repair your credit. Many balk at their credit score post-bankruptcy, as it is not uncommon to fall 200 or more points after your bankruptcy is processed. Bankruptcy was supposed to improve your score, not make it fall!
The reality is that bankruptcy eliminates your bad debt so you can begin to prove your trustworthiness in paying other debts. While the initial hit to your credit can be painful, bankruptcy can help your credit excel to new heights if you manage it properly.
Let’s go over the best ways to improve your credit score after filing for bankruptcy.
Check your credit report
Before, during and after your bankruptcy, make sure to check your credit report for any errors. A study by the Federal Trade Commission found that one in four people had an error that made them appear to be risky lenders, so you’ll want to ensure your credit isn’t being represented incorrectly. Once your bankruptcy has been processed, you should check that the correct debts have been listed as discharged as well.
If something looks wrong, make sure you report it as quickly as possible. Notify the credit bureau responsible for the error either through a phone call or through their online reporting and follow up to check that it is removed. If the error is not corrected, you may continue to dispute the claim and provide proof of their wrongdoing.
Pay everything on time
Depending on the type of debt you have, some may not be eligible to be discharged during bankruptcy. This can include alimony, child support and student loan debt. If you have any debts remaining after bankruptcy, make sure to pay these on time. Failure to pay may cause your credit score to lower even further.
You might also see if you can add some of your regular payments to your credit reporting. Some landlords will allow your rent payment to be reported to credit agencies, along with some phone bills. You may see varying success with these added accounts, but as long as you pay on time, it’s worth trying!
Get some “safe” debt
One of your first priorities after bankruptcy should be to get some “good” debt and start paying it on time. The only surefire way to prove to creditors that you are a trustworthy borrower is to slowly accumulate small amounts of debt and pay it off consistently. Do not under any circumstances take out a loan that you cannot pay back, or you’ll be right back to where you started.
For some, this means getting a secured credit card and making regular payments. You may also try applying for a credit builder loan that allows you to put down collateral in exchange for a small loan that you can slowly pay off. As a last resort, you might apply for a low-barrier credit card like a retail card. These typically have high interest rates and penalty fees, so be careful with these.
Build a budget
No matter why you declared bankruptcy, you’ve likely learned a lesson about how to better manage your money. Now, you should focus on creating a strict budget and adhering to it. First, start building an emergency fund to prepare you for any disasters that may arise. Don’t rely on your credit cards to get you out of an emergency, as this can quickly become a habit. Continue to manage existing debts and avoid taking on any additional debt. If you need further assistance, reach out to a financial planner and work together to make a budget that suits your needs.
Are you ready to file for bankruptcy?
Contact Reynolds & Gold. We can help you through the process of filing for bankruptcy and discovering financial freedom from debt.