Rebuilding credit after bankruptcy is no easy task. You have to be prepared for the fact that the bankruptcy verdict will be in your credit report for years and years. This means that many of the loans of credit cards you apply for will be rejected or even if they are accepted, you will find yourself paying off very high interest rates. This is why when you’re fresh out of bankruptcy, it is crucial to remember the following guidelines to build yourself up and ensure that this won’t happen again:
How Long It Lasts
First things first, a bankruptcy verdict typically lasts for 10 years in your credit report. There is no way to change this so just get yourself ready for the next 10 years building a better credit line. The good news is that as your good financial decisions accumulate, debtors will be noticing the bankruptcy verdict less and less.
Get a Secured Credit Card
Be prepared for the fact that you will NOT get a credit card with a decent interest rate. Hence, it would be best to opt for a secured type of credit card. This mode of payment basically come with a secured deposit in your bank, making sure that should you ever default on your payments, there is a ready amount which can be used to pay off the credit.
Pay Your Bills on Time
Always pay your bills as soon as they come, taking into account the fact that late payments means interest rate. You don’t want to find yourself paying for interest rates you can barely afford. Try to create a calendar which lists down every possible expenditure you have by the month so you would know exactly what needs to be paid on what day. Doing this can save you tons on payment fees alone.
Pay Cash When You Can
Do NOT use all your available credit. Most people who just came out of bankruptcy make the mistake of using ONLY cash, but this is actually a bad bet. Cash doesn’t build your credit record because there is no credit to speak of. Hence, it is important that you DO have credit for the next 10 years – you just have to make sure that you come off as a good credit bet with each transaction. The general rule of thumb is this: consume only around 20 to 30 percent of your allowable credit and pay them off each month. The rest of your items you can purchase through cash. This makes you come off as a smart spender and a good payer in the eyes of credit institutions.
Always Follow Up on Reports
No matter what kind of credit you happen to be on – make sure that its being reported to the credit bureaus. You can ensure this by talking to the bank manager or any authority in the financial district you happen to be a client in. More often than not however, this is unnecessary considering how almost all banks report to at least one credit report bureau.
Check Your Reports
Take careful note of all your credit transactions and compare them to your annual credit report. The good news is that annual credit reports are typically given for free from the tree major bureaus. Hence, all you have to do is place the order and get your report. Compare it with what you have and dispute any errors. This is CRUCIAL – any errors can adversely affect your report, making bad things worse with the mistakes. You would want to rebuild your credit as fast as possible so any improvement you are making with your financial situation should be reflected therein.
Have a Financial Lifestyle Change
There is really no better way to say this: learn to save money, lower your expenses, and prioritize your purchases. You don’t want to end up in the same financial quagmire you were in before. Create a budget or avail the help of someone who has a good idea on financial management. Note that it is never a good idea to purchase small items using your credit card – even if it is a secured one. Imagine having to pay an interest rate for a $3 purchase which you could have easily paid yourself with cash. The goal here is simple: do NOT get into debt again, otherwise you will REALLY find it hard to get back on your feet. Remember: if you have been granted a bankruptcy petition, there’s a length of time wherein you cannot apply again.
Don’t Apply for Credit Too Often
It’s OK to apply for credit cards after bankruptcy, but don’t apply too often. Send one application every 6 months, too often will only create frequent “hits” on your credit report which wouldn’t look good on a long-term standpoint. In fact, waiting longer would be better on your credit report. If you have currently open accounts – don’t close them! This is actually a good thing on a mathematical standpoint. However, if you just can’t control yourself – closing them might be the better option.
Upgrading Your Secured Card
The main problem with a secured card is that you have money in the bank that you can’t touch. However, once you’ve managed to prove your good credit history with this particular bank, you might be afforded additional perks. For example, after 1 year of maintaining a secured card with excellent payments, you can ask the bank for an upgrade. An upgrade usually means switching to an unsecured credit card, thereby allowing you to withdraw the amount you have as security. If you feel you can’t control yourself however, then just skip this part.
Save Some Money
Every time you cash your paycheck, set aside some of that cash for your savings account. Most people make the mistake of spending first and then devoting what’s left as their savings. However, this isn’t how it works. Ideally, you should set aside some money first before spending what’s left. This way, it would be easier for you to actually build a cushion of safety for your savings and prevent another bankruptcy plea.
Of course, those are just some of the ways you can repair your credit after a bankruptcy. Remember: this is not an overnight process. You will have to go through the usual process and slowly but surely get your financial foot on an even standpoint.