Credit After Bankruptcy
Many people worry about how bankruptcy will affect their credit score. While it is true that bankruptcy is a negative credit event, this doesn’t mean that you will never get credit again or never be able to qualify for a mortgage. Credit card companies and banks would like you to believe this because they want to discourage you from filing for bankruptcy. The truth about bankruptcy and your credit report is that you can start over and rebuild your credit.
The truth is this. Bankruptcy can be reported on your credit report for up to 10 years, but that does not mean it will take you that long to re-establish your credit. It will take work, but you can start rebuilding as soon the bankruptcy proceedings are over.
The key to re-establishing your credit in your life after bankruptcy is to have a budget and stick to it. During the bankruptcy process you will already be adjusting to a budget. Your bankruptcy attorney will advise you to stop using your credit cards as soon as you sign up. Post-bankruptcy, your budget will be your guide so you can avoid slipping into debt again.
Some of the best ways to rebuild credit are to obtain one or all of the following:
• An unsecured credit card
• A secured credit card
• A secured or unsecured loan
• Credit from banks or credit unions
• Retail or gas credit cards
People are often surprised by the number of credit card offers they receive after filing bankruptcy. Believe it or not, there is considerable group of lenders who are happy to work with people who have just filed bankruptcy. Remember to be a consumer. Interest rates will be high and you can be choosy about whom you work with.
An unsecured credit card is a typical credit card where a line of credit is issued without any money held as security. A person should avoid carrying a balance on these cards because the holder’s credit score will increase faster if the holder pays off the balance in full each month. It is important to get a card through a bank that will report to all three credit agencies, as this will allow all three to increase based on positive reporting.
On the other hand, a secured credit card is a card where the line of credit is equal to the amount of money the applicant gives to the bank to hold. Most banks will offer an unsecured card or an increase in the limit after a certain time period of good payment history. Also, similar to the unsecured card, it is important to make sure the lender reports to all three credit agencies.
A person interested in building credit may also be able to apply for secured and unsecured loans. The process for applying for these, and how they are used, is essentially the same as for secured and unsecured credit cards.
Obtaining a retail or gas card may not happen immediately. Most of these cards require a re-established credit before one can be opened, but they can help rebuild your score.
Credit from banks and credit unions can also help reestablish credit. Accounts from mainstream lenders will have the greatest affect on your score, as future creditors want to see that they are willing to offer you credit.
For applicants, it is important to have an idea of whether they will get a loan before they fill out any application. Unnecessary credit inquiries can hurt a person’s credit score, especially right after bankruptcy.
For people making car payments, reaffirming on their cars and making regular payments after their bankruptcy has been completed will help them re-establish their credit.
The important thing to emphasize to anyone contemplating bankruptcy is that you can rebuild your credit. If you are considering bankruptcy and are looking for information about your options, you should speak with an experienced Aurora bankruptcy attorney who can review your situation with you.