Rebuilding Credit After Bankruptcy
We have written in the past about how bankruptcy can affect your credit. Your credit will be negatively affected by your bankruptcy, but the news is not all bad—in fact it may be better than you think. The dip your credit may take after bankruptcy may be better and shorter lived than the continuing hits on your credit from unpaid and constantly defaulting bills.
How Long is the Credit Hit?
Remember that just because bankruptcy may stay on your credit for 7-10 years (depending on the Chapter you filed) doesn’t mean the bankruptcy will affect your credit the same way for that entire time. As time goes on—and depending on your financial affairs, and things you do or do not do—the bankruptcy can have little or no effect on your credit as time goes on.
So if you do file for bankruptcy, how can you start to rebuild your credit? What are some steps you can take to bring your credit score higher?
Authorized User – If you know someone such as a family member or a non-filing spouse that has a credit card, consider becoming an authorized user on their account. As an authorized user, your credit can improve, even though you are not the person legally responsible for the debt.
Authorized users cannot be sued for accounts that are not paid by the account holders and their credit cannot be negatively affected.
Take Advantage of Credit Offers – Responsibly-iYou may find that you get offers of credit in the mail after you file for bankruptcy. Credit companies know you just filed for bankruptcy and that you cannot file again for many years, so they may see you as a safe bet. Still, they will make you offers with absurdly high interest rates—rates you may be initially inclined to reject.
The better option is to take those offers, and make small purchases that you timely pay off every month—even if it’s just a single $50 monthly charge. That way you won’t pay interest, and you are developing a credit history of paying things on time.
Secured Credit Cards – These are credit cards where you will initially put money down as security for your debt. The money you put down becomes your credit limit. If you don’t pay, the bank will hold your security. The good thing about these cards is that they are relatively easy to get, no matter your credit, and using them still helps your credit score.
Pay Reaffirmed Debts – There may be debts, like your car payment or your mortgage, that you agreed to keep paying after your bankruptcy. If these loans were current before your bankruptcy, keep paying them even after your bankruptcy. They are good ways to keep credit, and show a longer, established history of paying a debt on time.