Filing for bankruptcy may be the right move in certain financial circumstances, but it can wreak havoc on your credit score.
According to Experian, accounts affected by bankruptcy will say “included in bankruptcy” on your credit report for a set amount of time. If you file Chapter 13, the bankruptcy will show up on your report for seven years. If you file Chapters 7 or 11, the bankruptcy will be part of your history for 10 years. Contact a bankruptcy filing service to determine which chapter is right for your situation.
While it will impact your credit report for years, there are steps you can take now to start improving your credit. Follow these five tips to raise your credit score after bankruptcy:
1. Be Proactive With Your Credit Reports
Credit activity is not always reported accurately, and it’s up to you to ensure your credit report is correct. After you file for bankruptcy, check your credit report to ensure that any accounts not involved in the bankruptcy aren’t mistakenly reported with a bankruptcy status. If any information on your report is inaccurate, contact the credit bureaus immediately and ask for it to be corrected.
Additionally, once your bankruptcy is eligible to be removed from your credit report, check and make sure it is no longer there.
2. Get a Secured Credit Card
Once you have filed for bankruptcy, it’s important to start establishing a good credit history again. One of the best ways to do this is through responsible credit card use. Unfortunately, you’re unlikely to get approved for a credit card in the aftermath of a bankruptcy.
However, you could apply for a secured credit card to help you reestablish credit. Secured cards have low credit limits and require an up-front deposit as collateral, but they are easier to qualify for and can help you build your credit so you can eventually qualify for a traditional credit card again.
Note that some secured credit cards have high fees, so compare your options carefully before you apply.
3. Pay Every Bill on Time
One of the best ways to build good credit is to pay your bills on time. If you do qualify for a secured credit card, it’s imperative you pay your bills by the due date. This establishes excellent repayment history, which will boost your credit and increase your chances of qualifying for a traditional credit card in the future.
As you work to rebuild your credit, it is also important to pay your other bills on time, such as your utilities or any other loans. Late or missed payments may show up negatively on your credit report.
4. Never Miss a Payment
If you are having trouble making ends meet in the wake of your bankruptcy, don’t give into the temptation to skip a payment on your secured credit card or any other bills.
If you are afraid you won’t be able to make a payment, proactively reach out to your creditor to see if you can make an arrangement that won’t hurt your credit. Some companies and creditors are willing to extend due dates, create payment plans, or make other accommodations so they can still get paid.
5. Create a Realistic Budget
One important activity you can’t skip in this process is creating a budget you can stick to. The key is to living within your means and not spending more than you make each month.
List all of your monthly expenses and all of your monthly income. Once you can see how much disposable income you have left after your expenses for things like entertainment and shopping.
If you find that your expenses are greater than your earnings, it’s a sign you need to decrease your expenses or find a way to increase your income. Otherwise, you will have to rely on credit and may find yourself in trouble again.
Once you create a budget and learn to stick to it, you will find it easier to pay your bills on time and improve your credit after bankruptcy.
A bankruptcy is not the end of the world for you. In fact, it’s one of the most useful forms of consumers protection available.
While there will certainly be negative consequences if you file for bankruptcy, responsible money management will slowly but surely turn your finances around.
Photo credit: Mint