Rebuilding Your Credit after Bankruptcy
Your credit score is calculated according to several different factors like your debt-to-credit ratio, the age of your credit cards, your payment history, whether you’ve ever defaulted on any loans, and how often retailers or banks have requested a check on your credit. While declaring bankruptcy will adversely affect your credit score, filing for bankruptcy doesn’t mean you’ll never be approved for a loan or credit card again. While a bankruptcy can stay on your credit report for up to ten years, its negative impact can begin to lessen the day your bankruptcy is finalized. Since banks make a great deal of money off of credit cards and certain kinds of loans, they still have a vested interest in reaching out to people who have declared bankruptcy: if they avoided people who declared bankruptcy, they’d effectively shrink their customer base with each bankruptcy declared.
In general, you need two types of credit to improve your credit score: installment credit and revolving credit. Installment credit involves monthly payments on things like car loans, mortgage payments, or student loans. You can improve your credit score by establishing a history of stable, timely installment payments, indicating an ability to manage debt. Revolving credit involves the fluctuating use of credit lines such as credit cards or home equity loans. Here again, if you make timely monthly payments, your credit score will improve. In both cases, however, if you can pay off your debt early or, at the very least, make early payments when possible, your credit score should improve.
Most people who file for Chapter 7 or Chapter 13 receive credit card offers in the mail in the months following the completion of their bankruptcy. While these card offers are likely to be for a low balance, high-interest rate card, if used wisely it can help you begin the process of rebuilding your credit score after declaring bankruptcy. Otherwise, if you have money to deposit as collateral, you can apply for a secured credit card. If approved, your credit limit should reflect the amount you’ve deposited as credit. For example, if you deposit $1,000 in your credit card account, your credit limit will be $1,000.
Secured credit cards typically involve an application fee and annual fees as well. Consequently, it’s important to compare rates and shop around before going deciding where to apply for a secured credit card. Further, some companies may try and take advantage of you or require you to buy an insurance policy or credit counseling services. Don’t fall for these tactics – talk to other banks or companies. However, make sure the bank or company that provides your secured credit card reports to all three credit bureaus – Equifax, Experian, and TransUnion. If they don’t, you’ll lose a major benefit of having a credit card in the first place to help rebuild your credit.
It’s essential and can’t be stressed enough – check your credit report at least once a year. You are entitled to a free copy of your credit report on an annual basis. Doing so provides a measure of protection against identity theft and also allows you to see if there are any inaccuracies that could be adversely affecting your credit score. Unfortunately, after filing for bankruptcy, accounts that have been cleared or closed can still appear on credit reports. If this happens to you, you’ll have to contact Equifax, Experian, or TransUnion and tell them the accounts in question need to be reported as “included in bankruptcy.” A failure to do so means these accounts will continue to harm your credit, preventing you from improving your credit score.
Most people wait until they are drowning in debt before they ask a bankruptcy attorney for advice. If you’re having difficulty paying your mortgage and credit cards or can only make the monthly minimum payment on your cards, it’s time to talk to a bankruptcy lawyer. Bankruptcy can help you regain your financial footing while saving your thousands of dollars, a cheaper and more effective solution than relying on a debt consolidation company.
If you have questions about bankruptcy, the attorneys at Mile High Bankruptcy, PC, can evaluate your financial situation and discuss the options available to you. To schedule a free consultation to discuss your case, contact Denver, Colorado bankruptcy attorneys at Mile High Bankruptcy, PC today.
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