In 2016, almost 1 million people in the U.S. filed for some form of bankruptcy, the most common being Chapter 7 protection, which differs from Chapter 13 in that a repayment plan does not need to be filed. Those who file for Chapter 7 will take a major hit on their credit, possibly dropping their credit score 200 points or more. There is no doubt that this is a major financial blow – as were the events leading up to the bankruptcy, in all likelihood – but the mistake many people make is in seeing their filing as an end; as something that can’t be recovered from.
While those who file for Chapter 7 are in a hole, it is not one that can’t be escaped, and the sooner you get started on your plan of rebuilding, the better. Below are some steps you can use to rebuild your credit after filing for bankruptcy:
If bad spending habits lead you filing bankruptcy, the vital first step in recovering is ending those bad habits. Unless you do this, you are likely to travel down the path to even more severe financial difficulties. If hard truths need to be faced, now is the time to face them and get past them. Until you take control of the things you are able to control and get your financial house in order, you cannot begin to rebuild.
But if bad spending habits did lead to your bankruptcy and you are able to end them, you are on the road to returning to the status of someone with good credit. Make a budget and stick to it. Paying bills on time makes up a large portion of your credit score and also shows potential lenders that you are again becoming a reliable risk.
Things may be bad, but if you want to begin the process of rebuilding your credit, you need to know how bad. For this you’ll need to gather information. Get a copy of your credit report and check it thoroughly. Are there things listed that you can dispute? Is something that should have been taken care of in the bankruptcy filing still on there? Are there any duplicate listings? Dispute anything that should not be there. After all, rebuilding your credit won’t be easy and there is no point in being punished for things that shouldn’t be on your report or that you fixed.
You should also check your credit score with the major credit reporting companies. Knowing your score at the outset will allow you to keep track of your progress and give you tangible proof that the work you are putting in to rebuilding your credit is paying off.
After a bankruptcy, many people are hesitant to jump back into the world of credit cards and loans. But staying away from credit will never rebuild your credit score. You have to be an active participant in your recovery, and there are several ways you can do that.
One of the best ways to begin rebuilding your credit is to get a secure credit card from a company that reports to all the major credit bureaus. Secure credit cards are cards you can use to pay bills, but they are backed by a deposit of money that you give the company that issues the card. Your credit line comes from that deposit; you pay off the card just like an unsecured one, but your deposit stays with the company in case you don’t. Making timely payments and keeping your balance paid off will lead to a climb in your credit score and can lead to an unsecured credit card down the line, albeit one that may have a higher interest rate than you were used to.
Just remember one major rule about getting credit after declaring a bankruptcy: Only use credit you can afford.
Toward that end, another good idea is to open a checking or savings account with a bank or credit union. Devote a portion of your budget to savings with a little of your income at regular intervals; not only does saving show creditors you are serious about rebuilding your credit, it is also a good thing to have in case one of life’s many unforeseen circumstances pops up. A small nest egg can be the difference between paying a bill and falling behind again at the very moment you are doing so much to try to restore your finances.
There are also other ways to begin to rebuild your credit, just remember to go slow; it took some time to hurt your credit and it will take some time to bring it back. Besides secured credit cards and higher interest unsecured ones, you can also get a retail or gas card. Since you would be using these cards to purchase things you need anyway, you can stick to your budget and rebuild your credit at the same time. After some time has passed and your score has seen improvement, you may even begin to think about a small loan, as long as you are sure you can afford it. Again, just be prepared to pay a higher interest rate and take that into account with your budgeting.
More than anything, be patient, don’t get ahead of your income and don’t dig yourself another financial hole. Do not take on a bill you can’t pay or borrow money you can’t pay back. Be steady and vigilant when keeping track of your credit score and following your budget. Take your rebuilding one step at a time and make sure you are on solid footing before taking your next step. Just keep in mind that every step is leading to a better future for you and your family.
For more information or if you have questions about bankruptcy in the state of Florida, contact the attorneys at the Badgley Law Group so they can review your case and answer your questions. We are here to help you take control of your financial situation again.