Bankruptcy equals legal protection from your creditors. When you file for bankruptcy protection it either eliminates or reduces the amount you will owe your creditors. The bankruptcy will likely eliminate most or all of your debt, giving you a fresh start. These are all the good things about bankruptcies. Having said that…
It’s no secret that filing for bankruptcy protection is going to take a toll on your credit reports and credit scores. The record of the filing can legally remain on your credit reports for a decade, and it will be problematic the entire time. Still, even if you have filed for bankruptcy, it doesn’t mean you’re condemned to a lifetime in credit purgatory. The rumor that it’s impossible to rebuild your credit after a bankruptcy, or even that it will take a full decade to do so, is a bit over exaggerated.
Of course, if you’ve filed for bankruptcy, you’re not going to be able to rebuild your credit overnight. That part is true. And while there is no silver bullet, there are absolutely some proven steps you can begin taking to rebuild even as soon as day one after your bankruptcy.
1. Check Your Reports
Credit reporting errors occur frequently, even after a bankruptcy, and the responsibility to monitor your credit reports for errors lands squarely on your shoulders. Once the dust has settled after your bankruptcy has been filed and/or discharged, you should check all three of your credit reports to ensure the debts included in your bankruptcy are being reported with accurate information. Any debt discharged by your bankruptcy should be reported as having no balance, no past due balance and no late payments after the filing date.
2. Establish New Credit
While establishing new credit will not erase your prior credit problems, doing so does indeed have some potential credit rebuilding value. The catch is that it can be difficult to be approved for new credit after filing for bankruptcy unless you know where to start. Even with a bankruptcy filing haunting your credit reports, you will likely still be able to qualify for some secured credit cards and/or a credit builder loan product at your local credit union. Plus, in addition to the secured card and credit builder loan solutions, you may have a loved one who would be willing to add you as an authorized user on an existing credit card account. All three of these credit rebuilding options have potential and are worth considering.
3. Pay Attention to Your Payments
Your payment history accounts for roughly one-third of the points in your FICO and VantageScore credit scores. Point being…it’s a big deal. When you’re turning over a new leaf and setting out to rebuild credit after a bankruptcy, it’s absolutely essential that you keep your future payments on time, every single time, no exceptions. If late payments continue to pop up on your credit reports after a bankruptcy, you’re proving to credit scoring models and future lenders alike that you have bad habits that perhaps led to your bankruptcy in the first place. Plus, continued late payments will likely serve to offset any positive impact your new, post-bankruptcy accounts would have afforded you.
4. Pay attention to your credit card balances
Credit card balances will have nearly as significant of an impact on your credit scores as your payment history. Credit reports now have the ability to maintain a record of your historical balances and payment amounts. This means it’s easy for a lender to see if you’re paying your credit cards in full each month or just paying a minimal amount. You’ll be considered a better credit risk if you’ll work to pay your credit card balances off from month to month instead of carrying a balance.
5. Monitor Your Progress
Keeping a continuous eye on your credit reports and scores is smart whether you’ve filed for bankruptcy or not. You should certainly continue to check your credit reports for errors, of course, but you can also monitor your credit reports to track your progress. There are a variety of websites that will give you free access to your credit reports and scores each month, if not more often. It’s not a bad idea to register at these sites, such as CreditKarma.com or Credit.com, and routinely monitoring your credit reports and scores to validate whether your actions are working.