Bankruptcy can act like a wrecking ball when it comes to finances and credit score and to top it all of it stays on the record for 10 long years.
But bankruptcy isn’t the end the world, don’t believe the naysayers. You can still get loans and reach a respectable credit score. With the right effort and strategy, bankruptcy’s effects fade away.
Yup, it’s a marathon rather a sprint but achieving that dream credit score of 700-740 can be done, will be done and we’ll make sure you can get it done. Here’s what you need to do.
Step 1: Lay the groundwork
Repairing your credit after bankruptcy will require work from the ground level and that begins with your current income and expenses. With little savings each month you’ll look less of a debt burden to the lenders.
Also, your bankruptcy plays into your hands here (maybe the only upside). Since bankruptcy cannot be filed for another 8 years it lowers the risk on the lenders part.
Apart from that, it’s time to buck up and straighten things out. Firstly, set a budget and the advice received during counseling after bankruptcy should come in handy here. But since we’re covering all basis here are some tips for budgeting like a pro.
- Avoid overpaying on rent or mortgage. Move to a cheaper accommodation if need be.
- Be conservative with your use of water, electricity, gas and other basic amenities
- Cut down on fancy outdoor meals. If need be, prefer taking lunch or dinner from home.
- Use public transport more often or if you’re looking to join the fitness bandwagon nothing compares to a run or a jog to a nearby destination.
- Also, cut on on expenses such as your phone and internet bill. Enjoy the free Wi-Fi coffee shops and libraries offer.
- Keep your health in check. Visit a physician regularly and if you’ve got a genuine reason you might just save on taxes.
- Always keep your receipts stored in a folder with the date and time marked on it so you know exactly where you’ve been spending and how you can further reduce costs.
But in case you still feel like a fish out of water, seek a free consultation from a credit repair company.
Step 2: Always have a backup
A general rule of thumb is to have enough money backed up for 5-6 months of your life but even as little as $400-$500 saved as a crisis fund can protect you from debt due to loans, unpaid credit card etc.
That’s because you’ll always have something in the kitty (or as in the image, the piggy) apart from savings to pay for unforeseen expenses without having to beg, borrow or steal.
Step 3: Check out your credit report
Reviewing your credit report will give you a fair idea about the task at hand as they are used to calculate your credit score. Any score below 400 and you know there’s a mountain to climb.
Reports can be collected from any the respected credit bureaus such as Equifax, Experian, and TransUnion.
But contacting them individually can be time taking, thankfully there’s AnnualCreditReport.com, the one-stop solution for your yearly credit reports from any bureau.
And if that wasn’t convenient enough, you can even have them mailed over. Just fill the given form to have them delivered to your doorsteps.
Next up, dig into those reports. Yes, to an extent it resembles a car wreck but any inaccuracies in the credit report can further dig your grave. But what do we mean by inaccuracies? Look out for any duplicated entries or debts not included in the bankruptcy etc.
And in case you do come across such info do report it immediately via mail along with the proofs of the error. Also, request a received receipt as an acknowledgment of the received documents.
Step 4: Keep up with your bills
Did you know that bill payment history makes up 35-40 percent of your overall credit score? But how many times do you think to yourself, ‘aaah I’ll pay that tomorrow’, then incur late fees on it, in turn, negatively affecting your credit score?
On time bill payments is one of the easiest ways to set off on your road to recovery
Following step 1 gives a clear idea about the income and expenses. Mark-up the calendar or set reminders on your smartphone about upcoming due dates and follow it to the letter. All payments should be made 1-2 days in advance either by cheque or online modes and save the receipts datewise as a record.
Step 5: Sign up for a new credit card
Ever heard the quote, fighting fire with fire? That’s exactly what the next step is all about, except we’ll fight low credit score with more credit. For this, you’ll first need new checkings or savings account.
Get in touch with your friends, family, read reviews online of the facilities, interest rates, benefits etc. offered by various banks to make the right pick.
Once that’s done, it’s time to apply for a secured credit card. A secured card is a prepaid card where your spending limit is set by the deposited amount.
For starters, a deposit of $200-$500 is good enough and you continue to pay up on time you can get the limit increased to $1000 or more and later ask for an unsecured credit card too. Few tips to keep in mind when getting a secured credit card are:
- Start small i.e. around $200 and grow your limit with timely payments.
- Skip and financial institution demanding exorbitant setup fees and avoid opening 2-3 accounts.
- Pick a bank or financial institution that reports timely payments to every major credit bureau so your score continues to improve.
- Opt for a bank you’d want to stick with long-term so you can easily get an unsecured card in the future.
- Also, do a thorough research about the terms & conditions and requirements of each bank or institute beforehand. Being rejected too often can tip the scales against you.
Note: Having to wait for a year after bankruptcy for a secured credit card is normal in many cases. Use the time to build up saving and correcting your credit reports.
Alternative Step: Get a Loan
Another great way to get the credit score ticking is getting a loan from your bank or a credit union. Any amount that you’d be able to pay back within a month or two should be good enough.
Again, make sure the bank or union sends reports of regular payments to credit bureaus. A thorough search should help you get a good interest rate too (even more than a secured card). But before finalizing the loan do read the T&C so you have a clear idea about the fees, penalties etc.
Also, getting a retail or gas credit card should aid your cause as it’s a credit of a different kind. But Avoid cards that require huge sign-up fees or do not report to credit bureaus. Remember, these retail cards aren’t your license to shop till you drop dead (let’s stick to the budget, remember?)
Step 6: Be Skeptical about Credit Repair Companies
While credit repair companies do what they do best let’s not forget they are in the end a profit-making business. Yup, the advertisements may claim overnight miracles but let’s not kid ourselves, credit repair doesn’t work like that.
These companies are effective in the long run but charge a significant monthly fee and setup cost but that’s not the only problem.
While companies like Lexington Law, Pyramid Credit Repair uphold the legitimacy of the industry scams are never too far away. These are designed just to lure you in and the only thing that disappears overnight is your money.
Do your research. Legit credit repair companies are far and few and if you’re desperately looking for one we’ve got them reviewed right here.