Filing for bankruptcy is a lasting financial decision, though not a permanent one. Bankruptcies remain on your credit report for ten years, but during that time there are options to help raise your credit score. The first step to recovering is assessing the damage by obtaining that score. Evaluating a credit report is essential in order to ensure there are no discrepancies or errors in the record. Once you know where you stand financially, a bankruptcy lawyer can provide detailed counsel, however, there are various ways to raise your credit score independently.
Avoid Closing Credit Lines
While it may seem like a good idea to close credit lines, it is unwise. This reduces the amount of credit available to you, and after filing for bankruptcy there will be fewer opportunities to open additional lines later on. The longer a credit account is open, the better your score will be. Rather than eliminating your credit cards completely, stop making purchases with those credit cards and focus on eliminating the debt acquired.
Before you start working on rebuilding your credit score, you must first eliminate any outstanding debt left over from your bankruptcy filing. As daunting as it is, catching up on past due balances is a necessary step in strengthening your financial portfolio. Once you have corrected any past financial blunders, forming new spending habits is a whole lot easier.
Pay Your Bills on Time
It seems like common sense advice, but the majority of your credit report, roughly 35%, is based on payment history. This means that delinquent payments, especially habitually, will negatively impact your score. Paying on time establishes a reliable pattern of behavior essential to rebuilding your credit.
Use A Secured Credit Card
Unlike a standard credit card, a secured credit card requires you to provide a linked savings account to use as collateral against your purchases. When your credit is poor, it will be easier to obtain a secured line as the money is verifiable. Keep in mind that this must be a credit card, not a prepaid debit card, as credit payment history is what gets reported. While you might have to apply for a secured line at first, after diligent repayment an upgrade to an unsecured credit line will be an option allowing for a slight boost in your score.
Apply For A Loan
While applying for any loan can increase your credit score so long as you pay down the loan in a timely fashion, the smartest strategy would be to apply for an installment loan of low value. Given credit history, it is likely that the interest offered on these loans will be high, so applying for a low-balance installment loan for an affordable automobile, for example, is an ideal scenario. The point of an installment loan is to show diversity of account types in your financial portfolio, which builds your credit score significantly, so make sure to target your applications.
Form Responsible Financial Habits
Results are usually seen within three months (90 days) in most cases, but extreme cases might mean several years pass before seeing significant improvement in your financial situation. As you rebuild, create a budget for your monthly spending. Open a savings account, if you don’t already have one, and start saving a portion of your income for emergencies and a stable future. Maintaining the habits created while raising your credit score will assist you in making smarter financial decisions in the future and providing a cushion to fall back on during hard times.