Recovering from bankruptcy can be challenging, especially when it comes to rebuilding your credit. Filing for bankruptcy significantly lowers your credit score, and insurance companies, potential employers, cell phone providers, and landlords use this score to determine your level of financial trustworthiness and whether they should extend credit to you.
You may have difficulty obtaining credit, and if you do obtain it, it’s likely that you will have to pay a higher than average interest rate on your purchases. Some creditors may even ask for a substantial down payment. It can be a challenge to improve your credit rating—but it can be done.
Bankruptcy Will Not Impact Your Credit Score Forever
Although bankruptcy is a negative mark on your credit report, it will not stay on your report forever. According to Nolo, bankruptcy must come off of your credit report within ten years. If your bankruptcy is more than ten years old from the day you filed, you can file a dispute with the credit reporting agencies and have it removed.
4 Steps to Improving Your Credit Score
Here is a list of steps you can take to improve your credit score to help you recover from bankruptcy:
- Get your credit reports: Federal law allows you to annually check your credit reports from the three main credit bureaus (Experian, Equifax, and TransUnion) for free. Go online to AnnualCreditReport.com to obtain your credit reports. Monitoring your credit reports annually is essential to staying informed of any changes.
- Fix credit mistakes: Your credits scores are based on your credit reports. Review your credit reports for any inaccurate information.
- Build credit: In order to rebuild your credit history while recovering from bankruptcy, you need good credit. As Bankrate notes, you can apply for a prepaid or secured credit card with your current financial institution. You will have to make a deposit, which will be used as collateral for the account. You can also apply for credit at a retail store or bank; if you are approved, the interest will be high while you are recovering from bankruptcy, but you will begin to rebuild your credit.
- Pay your bills on time: Recovering from bankruptcy is a process. It will not happen overnight, but paying your bills on time will make the process easier. Although it will not raise your credit score initially, it can help you obtain credit from new creditors. When lenders look at your new credit accounts, they will see your new payment history. Pay attention to due dates and aim to pay your bills a few days early to ensure that your payment reaches your creditor on time. When you are recovering from bankruptcy, delinquencies can cause new damage to your credit score. If cash is tight, pay at the least the minimum on your credit accounts each month.
Recovering from bankruptcy entails reestablishing healthy credit. It can be a challenge, but by monitoring your credit reports and scores and paying your bills on time, you will start to see your credit score improve.
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