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How to Rebuild Credit After Bankruptcy

Contrary to popular belief, you will be able to rebuild your credit once your bankruptcy case has ended. Although the process of restoring your credit can take years, it can be done if you are diligent and make proper financial management a top priority for your life after bankruptcy.

If you have filed for Chapter 7 or Chapter 13 bankruptcy and are searching for ways to rebuild credit after bankruptcy, contact an Ohio bankruptcy lawyer at Luftman, Heck & Associates. We have helped countless clients improve their credit score and get their finances back on track. Call us today at (216) 586-6600, or contact us online to schedule a free consultation.

How Bankruptcy Will Affect Your Credit Report

You can expect your credit score to drop by at least 200 points after you file for bankruptcy. If you filed for Chapter 7 bankruptcy, this will remain on your credit report for 10 years. However, if you filed for Chapter 13 bankruptcy, this will be included on your credit report for seven years.

Why Using Credit is Necessary After Bankruptcy

Many individuals who have gone through the bankruptcy process state that they are fearful of credit and will never use it again. Although it’s essential to avoid racking up debt again, you should refrain from avoiding credit altogether after bankruptcy.

By making every effort to rebuild your credit following bankruptcy, you can increase your credit score and eventually be approved for a mortgage, car loan, or credit card with lower interest rates and a higher spending limit.

The Importance of Checking Your Credit Report for Inaccuracies

Once your bankruptcy case has been completed and your debt is discharged, you must check your credit reports from Equifax, Experian, and TransUnion for inaccuracies. Creditors often fail to update credit reports after a bankruptcy case has been closed so if you would like your credit score to improve, you must obtain your credit reports from the three major credit reporting agencies and check them thoroughly.

While you check them, make sure that your discharged debts are listed as discharged. In the event that a discharged debt shows up as active, your credit score can be negatively affected, so it’s essential that you inform the credit agency immediately. Once you’ve confirmed that your credit report is accurate, you can begin to rebuild credit by:

  • Using Secured Credit Cards- Secured credit cards are a powerful way to rebuild credit following bankruptcy. With a secured credit card, you can deposit money and draw from that money as if it were a non-secured credit card that most people use. By making timely payments every month, you’ll be able to re-establish excellent payment history and rebuild your credit as a result.
  • Paying Your Bills on Time- This may seem obvious but paying your bills on time is one of the most effective ways to rebuild your credit. Late payments and charge offs after bankruptcy will not show credit card companies that you are striving to become a debtor they can trust.
  • Living Within Your Means- One of the best ways to rebuild your credit and avoid digging yourself into another financial obstacle is to live within your means. You can do this by looking at your income and expenses and designing a budget that you stick to. Whether you have to dine out less, clip coupons, skip your daily coffee runs, buy new clothing every season rather than every week, or cut your cable, living within your means is essential.
  • Building an Emergency Fund- In addition to living within your means and resisting the temptation to spend more than you make, you should build an emergency fund. In the event that your car breaks down, your child needs a major surgery, you lose your job, or another emergency strikes your life, an emergency fund can save your financial situation. It’s a good idea to save three to six months of living expenses.
  • Applying for a Car Loan or Line of Credit- After your bankruptcy has been completed for a year or two, you should apply for a car loan or a line of credit. Since it’s vital to have various types of credit to improve your credit score, taking out a car loan or another line of credit can positively contribute to the rebuilding process. Be sure to avoid this tip if you cannot afford your monthly payments and ensure they will be paid on time.

Contact Luftman, Heck & Associates Today

The Cleveland bankruptcy attorneys of Luftman, Heck & Associates are committed to helping you and your family rebuild your financial health so that you can enjoy a happier, stress-free future. If you’d like more details on how you can rebuild your credit or have any questions related to bankruptcy, we encourage you to call us at (216) 586-6600, or contact us online for a free consultation.