November 24, 2020
Improve Your Credit After Bankruptcy
Whether you’ve just completed a Chapter 7 or a Chapter 13 bankruptcy, it’s time to start doing something about your credit. The goal is to slowly put whatever happened before in the past with newer information that demonstrates the responsible choices you’re starting to make. Here are some tips that will help you get through that first year after the bankruptcy discharge and have you on the way to re-establishing better credit.
Start by Replenishing Your Cash Reserves
Whether you had to come up with the money to fund a Chapter 7 bankruptcy or you just completed three to five years of payments under a Chapter 13, the fact is that the bank account might be somewhat low right now. Before you set out to restore your credit, restore your bank balance.
Set a goal for the balance in a checking account. It’s not too much to set a goal that creates a cushion of at least four figures. Doing so will help you feel more financially secure and also come in handy if you do have some sort of financial emergency. The security will help you feel less attracted to credit offers that are not really in your best interest.
Take a Good Look at Your Credit Reports
You may have avoided checking your credit reports while the bankruptcy was ongoing. Now is the time to request a free copy of each one. Your goal is to determine if the information is current and if all the entries are truly yours.
If you see anything on those reports that’s not up to date or not actually you, spend the time and effort needed to clean up the details. While you won’t be able to remove anything that is accurate, making sure all errors are corrected could help raise your scores by a few points. That will come in handy as you move on to the next phase of your credit rebuilding plans.
Resist the Temptation to Grab the First Card Offer That Comes Your Way
As anyone who has been through a bankruptcy will affirm, there are lenders out there who are ready to provide you with all sorts of pre-approved and pre-qualified credit card offers. Many of them are high-risk lenders who may offer some great introductory deals that last for six months or less. After that, the interest rate on the card may increase significantly and more fees and charges will begin to appear on your statements.
While it’s flattering that your mailbox is filling with card offers, don’t consider them to be gifts from above. Keep your composure and research the lender and their programs. Read the terms and conditions so you know exactly what type of obligation they want you to take on. In many cases, you will find these wonderful offers are not so great after all.
Consider a Secured Credit Card
How do you obtain a credit card with decent terms in the aftermath of a bankruptcy? One solution is to check into secured credit cards. There are providers out there who will offer terms and conditions that are reasonable. They also report responsible card management to one or more of the major credit bureaus. That will help offset some of the negative comments from years past and provide you with positive information that’s more recent.
A bonus of this approach is that you build up some savings that serve as the security or collateral for the card. There are providers who will extend credit limits that equal the balances in those savings accounts. You might get to earn a little interest while also having a card to use once again.
A Small Secured Loan Will Help Too
Small loans are also a quick and easy way to add another positive entry to those credit reports. Go with a lender who will provide a loan that you can pay off in a few months. Make sure the lender does report to the major credit bureaus. You should be able to lock in better rates and terms by using your car or some other asset as collateral.
The reasons for your bankruptcy didn’t materialize overnight; great credit will also take time to achieve. Be patient with yourself if you take a false step. Correct your course and keep moving forward. A year from now, you will see that things look a lot better.