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Unit 4 — How To Rebuild Your Credit After Bankruptcy
If you are one of the more than 1.5 million Americans who file for bankruptcy each year, you need to put together a plan to rebuild your creditworthiness. Though your first thought may be that you should stay away from credit and try to work on a cash only basis to avoid getting into financial trouble in the future, your credit score affects more than your ability to get a credit card or borrow money. It’s also used by employers when you’re looking for a job, insurers, and landlords when you’re trying to rent an apartment or house.Start With the BasicsThe first step in rebuilding your credit is to make a budget so you understand how much money you have coming in and how
much you need to pay your bills. If you don’t currently have a budget, there are many easy-to-use online tools or you can get a book on budgeting from your local library and create your own worksheet.
Next, make sure you pay all your bills on time, and whenever possible, in full. It’s best for both your credit score and your financial situation if you avoid carrying any balances on your credit cards. If you’re paying down balances on accounts that weren’t forgiven as part of the bankruptcy, pay more than the minimum due each month and focus on paying off the debts with the highest interest rates first.Another important step is building an emergency fund. Often, people who declare bankruptcy had to do so because they had unexpected, big expenses, like medical bills, or they lost their jobs and didn’t have the money they needed to pay for their living expenses. Though your budget may be tight, try to put a modest amount into a savings account every time you get your paycheck.Can I Get a Credit Card after Bankruptcy?
Another way to rebuild your credit is to get a credit card and only charge a few expenses you’d usually use cash or debit to pay for, like your utility or phone bills. If all your credit card accounts were closed as part of the bankruptcy proceedings, you may be able to qualify for a secured credit card account. With this type of account, you deposit money into a special bank account and can charge up to a certain percentage of your deposit amount. Before getting a secured card, check with the financial institution issuing the card that the account will be reported to the major credit bureaus and find out what fees and interest rate you’ll pay. Of course, make sure you pay your bill in full and on time every month and don’t go over your credit limit.
You could also consider getting a gas or retail credit card. These types of cards are usually available even to people with lower credit scores. Again, be careful to charge only what you can pay in full each month and pay your bills on time.Although going through bankruptcy can be very stressful, it’s important to remember that by being careful and proactive, you can rebuild your credit. It just requires some time and patience.
