Re-establishing Your Credit After Filing Bankruptcy
If you have filed bankruptcy and are now wondering if it is possible to ever have credit again, here are a few ways to rebuild. Bankruptcy is very severe and is a long road. It requires a long time to file and to complete your bankruptcy. Rebuilding credit will also take time. The 1st thing you want to make certain of while rebuilding your credit is that you never put yourself in a position of not being able to pay your bills again. On this occassion use credit as a means to purchase big ticket items like houses and vehicles for which you cannot pay cash. Be reasonable with these purchases too, though. You don’t have to have the largest, most costly home and your car definitely doesn’t need to be brand new. You’ll want to view your credit as a way to help you get things you want that you cannot pay for up front. Don’t fall into the booby trap of financing anything you would like. Discipline yourself to save for a couple of months before buying that new TV and use cash. You will feel miles better about yourself when you are not dragged down by the bondage of debt.
For the point of reestablishing credit, you will be financing things that you won’t need to finance after you have got your credit started. I should explain this in just a second. First, after your bankruptcy is discharged, get a major credit card, like Visa or Mastercard. Be certain you get something with a highly low limit and try and find the lowest rate you can get. If they will not give you an unsecured credit card, then you will have to get a secured one. To try this, you can choose a limit and put the cash up front. For example, if you get a $100 secured mastercard, you will send in $100 and then you will make charges and pay them off. The entire time the card is open, the creditor will have your $100. All you are doing is showing them you can make payments on time-but there is no risk for them because they already have your money.
Now take that card to a store and charge about $20 – $40 on it. Keep the rest of the balance open. Do not be persuaded to charge up the entire $100 since it’s yours anyway. Credit is impacted by how close your balance is to the limit, so we would like to keep this card as far away from the $100 mark as we can. Next, you will want to make payments on this purchase for one or two months. We’d like the amount you charge to be more than the minimum required payment so that you are not paying it off in full every month. While you might imagine it’s best to pay off your card in full each month ( and indeed for the sake of money management that’s the best way to use a credit card ), it doesn’t show the creditors that you can handle payments. So, you wish to show that you can make timely payments on your debt for a couple of months. When you get to the point at which the debt is paid off ( in a pair months ) charge something else for the same amount. Remember we’re attempting to carry a very low balance and start up a record of on time standard payments. Also, don’t feel tempted to open up store credit cards. You only want to have one – 2 credit cards open immediately. Get rid of that secured card as quickly as you’re capable of finding a standard credit card with a good interest rate. Be sure to close the other account when you get the new one. Don’t go silly searching for a credit card. If you apply at too many places at once, your credit score will go down. Just apply at one or two places and then wait 5-6 months before trying again.
After roughly six months of making on-time payments, it’s now time to go out and try and get a secured loan like a car loan if you need one. You may have to have somebody cosign for you, but this could still improve your credit. The best advice here is to finance only about $5,000 on a second hand car. This may be manageable and since your interest rate will probably be high on this loan, you won’t have to fret about paying too much in fees. Again, do not be tempted to bite off more than you can chew here. Just go with a low budget vehicle, make timely payments over the next 2 years and your credit score should actually increase.
At that point ( 2 years after the bankruptcy has discharged ) you will likely be in a pole position to get a mortgage if you need one. Again, try to get something tiny so you are able to keep on paying if you fall on difficult times. Confirm you’re saving money every month in an emergency fund and confirm you are able to resume saving money after you’ve financed your house. You might need to select a smaller house so that you can continue your savings account.
Following these tips should help you reconstruct your credit inside 2 years and keep you out of difficulty in the future.