When you file for bankruptcy, you become aware that your discharge will have two immediate effects: it will allow you to eliminate a lot of your debt (or organize it into affordable payments, depending on which chapter you filed for) and it will lower your credit score. How much it lowers your score, according to the Fair Isaac Corporation (FICO), depends on your entire credit profile. For example, someone with a good credit score, in the 700s, might see a drop of as much as 100 points. Those who have a lower credit score may see a more moderate drop.
Whatever your score becomes, know that your bankruptcy will be on your credit report for a long time, possibly as much as 10 years. But you have the power to improve your credit score as soon as your discharge is awarded. Here are 5 ways you can start rebuilding your credit after your bankruptcy:
Create a budget – During the bankruptcy process, you are required to take both an online credit counseling course and a financial management course. Use these courses to help you create a budget that will allow you to pay bills on time and maybe even set aside some savings.
Apply for a secured loan – A secured loan allows you to put up an asset, such as your car, to use as collateral. The creditor uses your collateral as a secured debt so if you fail to pay back the loan, your creditor can keep your collateral. Before applying for this type of loan, make sure you can afford to make timely payments so you don’t risk losing your assets.
Get a secured credit card – This type of card is a little different than a conventional card because it allows you to put money down as a deposit, which then becomes your credit limit. Once you have it, you should use it to make small purchases and pay it off every month. Carrying a balance from month to month will not have a positive effect on your credit, and may get you back into financial trouble again.
Get another type of credit card, such as a gas or retail card – A credit card from a retailer or gas station is also a little different, because you can often get these types of cards even if your credit score is not that great. Besides, if you own a car, you can use the card to pay for gas and then pay it off every month, which quickly establishes good credit. Be aware that these cards often carry higher interest rates than traditional credit cards, so you want to avoid carrying a balance.
Monitor your credit score credit report – The best way to keep tabs on your credit score is to monitor it. You can get a free credit report annually from any of the three largest credit monitoring companies: TransUnion, Experian, or Equifax. Every year you should get your free report and go over carefully, checking for any errors or omissions. Credit reporting errors do happen, and they can have a very negative effect on your score.
It will take some time to rebuild your credit, but it definitely can be done. If you have any questions about bankruptcy and how it will affect your credit rating, you might benefit from speaking to an experienced Ohio bankruptcy attorney. The attorneys at Cleveland Bankruptcy Attorneys can educate you on bankruptcy law and review your particular case to determine the best way to get you out of debt. Schedule a free consultation today by calling (216) 586-6600 or emailing us at advice@clevelandbankruptcyattorney.com.