Improving Your Credit After Bankruptcy

    Sometimes life throws small letter problems and big letter problems at you. Bankruptcy is a big “B.” The two types of bankruptcies average citizens are a susceptible to are chapters 7 and 13. Chapter 7 allows the individual to clean their slate of most debts, except ones owned by creditors. Chapter 13 charges the trustee to pay off all their debts within a set period of time.

    Being approved for bankruptcy might tell your creditors to go easy on your monthly premiums, but you’d be wrong. Filing for bankruptcy would be damaging to your credit score. Your score determines whether or not you qualify for a mortgage or loan.

    Credit ratings of 680-750 are considered ideal, while any number below 500 is “subprime.” The lower the score, the more interest you’ll have to pay. Improving your credit rating after a bankruptcy will take time, but it can be done. The best move is to learn about bankruptcy and understand how it affects your credit score. Here are some tips to get you started.

Open New Accounts

    Bankruptcy claimants worry that all of their financial arrangements with have to be handled through law firms. However, there’s nothing on record prohibiting you from opening an new bank account.

    The best kind of account you can open during a bankruptcy is a savings account. Savings accounts may be easier to manage, depending on the bank’s withdrawal limits. Any money put into savings could be legally protected as an exemption. This means your creditors cannot garnish funds from the amount held within. Make sure you choose to open an account with a bank you don’t owe money to.

Secured Credit Cards

    While your credit score may be compromised, that doesn’t mean you can still keep a credit card. Open a new, secured credit card account the moment you are discharged from bankruptcy.

    Secured credit cards operate on a credit line of 50%-100%. You will need a security deposit up to $300 to qualify. Extra fees and Annual Percentage Rates also apply.

    Another option is a co-signed credit card. All you need is a friend or family member with good credit to risk their credit to support yours. Pay your bills on time, though, or you may risk your relationships with your score.

Pay the Full Balance

    Being bankrupt doesn’t spare you from paying bills. If anything, your fiscal obligations are maximized.

    Pay the maximum amount on every monthly bill and premium. Clearing the full balance on each not only buys you time, but it shows creditors you are improving. Make early payments to avoid delays that would damage your score.     

Review Reports

    Applying for bankruptcy requires making a list of your current debts. After the bankruptcy period ends, these should be listed as “discharged.”

    Set a time every month to review your credit reports. Check for errors and negative marks that should be removed. Those “discharged” debts should list a $0 balance meaning they are no longer owed or past due. As long as you work from an affordable line of credit, your score will improve on a gradual basis.