If you decided to file for bankruptcy, repairing your credit afterward is probably one of your main concerns. Having a bad credit report means having a score lower than 560 based on FICO’s scoring system. Record of bankruptcy, your payment history, utilization of credit, and a host of factors influence how fast you can regain your score. Below are five general steps you can take to begin credit rebuilding post-bankruptcy.
Bad scores among borrowers’ are a consequence of having late payments, maxing out credit card limits, or having a property foreclosed. Bankruptcy filers usually go through all these, but it does not mean you should give up fixing your credit report.
How low your credit becomes depends on which type of bankruptcy you filed. If your debts get discharged through a Chapter 7 bankruptcy or reorganized under Chapter 13, your FICO score can drop below 200. Moreover, debtors with lower credit scores pre-bankruptcy may lose fewer points compared to those with higher initial scores. Aim for a higher score since this will help you get qualified for a mortgage application (such as buying a new home) and achieve better loan terms with a lower interest rate.
Ways to Fix your Credit
Before you start rebuilding your credit, you need to get a copy of your credit report. This helps you check that there was no error or omitted data regarding your previous loans or other financial activities. Debtors may secure copies of their reports from a credit bureau. Under state laws, they are legally obliged to provide you a copy for free every year.
1. Correct Credit Report Errors
Your credit report must be error-free. This is important since having serious errors can lead to credit card denials. Watch out for misspelled personal information, account numbers, accounts missing, public record of bankruptcies or foreclosures, fraudulent activities, or duplicity in any account.
Immediately report any misinformation seen to the credit bureau. If the mistake was on the part of the creditor, directly report it to your lender. Normally, reporting a credit mistake to the credit bureaus is enough to improve their score over a short time.
2. Stick to a New Budget
Learn to divide your post-bankruptcy expenses into fixed (necessary) or regular and non-regular payments. Regular expenses can include your insurance, any medical bills, utilities, and basic needs.
3. Get a New Credit Card
Expect to not be able to easily qualify for unsecured credit cards right after bankruptcy. Still, getting a new card is one of the fastest ways to boost your score. You can do so by applying for a secured credit card which is easier to get since the card is guaranteed by your cash deposit.
When you are granted a new card, your credit limit expands, your credit utilization ratio lowers, and you improve your credit score. However, make sure you can pay off any new balance incurred, so as not to put you back in debt. The goal here is to show you are creditworthy and to build your credit age. The lending institution sets the maximum amount you may spend using the credit card. If a certain time has elapsed after filing bankruptcy, and you have continuously paid your card balance, you may try to request an increase in your limit. Having this request granted can raise your credit score.
Moreover, if one of your relatives owns a card and has good credit score, you can be assigned as an authorized user which can significantly impact your credit.
4. Avoid Late Payments
Paying back debt and giving monthly payments on time help prove to your current creditors that you are financially reliable. This applies not just for your credit cards, but also your utility bills. If you are behind on your payments for a certain period, creditors will report your account. In extreme cases, your account can even be charged off, leading to cancellation and a late fee for every succeeding month.
Aside from sinking you deeper in debt, missing out on payments lowers your score and creditworthiness. You also face a high-interest rate from a potential lender. If your credit card debt has been discharged through a bankruptcy petition, you must keep current on your payments moving forward to regain your credit score.
5. Obtain a Loan
Once you’ve slowly rebuilt your credit score try to apply for a loan such as a car loan. Short-term loans with affordable payments are preferable as this helps you stick to your budget and lowers the risk of facing another bankruptcy case.
Get Started With Credit Fixing Today
At The Law Office of Daniela Romero, our bankruptcy attorneys understand that you want to know if there’s any way to rebuild your credit fast. Therefore, we offer our Pasadena bankruptcy clients FREE ACCESS to a credit rebuilding program that we’ve purchased.
If you have filed bankruptcy in the past, consult with us to explore your post-bankruptcy options. Or, if you’ve yet to file for bankruptcy, our bankruptcy lawyers will help you through the application process and credit rebuilding. Schedule an appointment or send us an email at [email protected].