Anyone who has filed for bankruptcy, or even just considered it, knows it can damage a credit score. Still, it’s often the only solution for those struggling with enormous debt. Fortunately, while a credit score may take a hit for a little while after bankruptcy is filed, it doesn’t have to stay that way. You can rebuild your credit score after filing for bankruptcy and, soon, you could have a score as high as 700 or 750. Below are a few ways to do it.
1. Maintain Good Financial Habits
It doesn’t take long for defaulted payments to show on your credit report. Technically, delinquency occurs when you’ve missed one month’s payment, although companies typically wait two months before reporting a late or missing payment. This still isn’t a very long time. For that reason, one of the most important things to do after filing for bankruptcy is to develop and maintain good financial habits. This means paying all bills on time every month, for at least seven years. That’s how long delinquencies remain on a credit report.
2. Create a Budget
Creating a budget is part of having good financial habits. It will help prevent you from missing monthly payments and gives you security knowing you’ll still have everything you need. Write down how much income you earn every month. Then, add up your essential monthly expenses such as rent, groceries, utilities, and transportation costs. Subtract your expenses from your income. If you have money left over, you can prioritize this for loan repayments or savings. If you don’t have funds left over, you are spending more than you are making. Expenses must either be cut, or income must be increased.
3. Obtain a Copy of Your Credit Report
To rebuild your credit, you need to know where you stand. Obtain a copy of your credit report from one of the three major bureaus, such as TransUnion. Review it carefully and, if there are any mistakes, report them to the bureau and the company that reported the error. Mistakes hurt your credit score and if the debt was listed by mistake, there are steps you can take to remove it from your report. Secondly, look at your credit score to determine where you stand. Any score under 400 is considered very poor, while a score under 640 is considered poor. Scores over 700 are considered good, while scores between 750 and 850 are considered excellent.
4. Create an Emergency Fund
An emergency fund gives you the security of knowing that even if you do experience financial hardship again in the future, you’ll have funds you can tap into. Emergency funds should provide for at least two months of expenses, and experts recommend putting away five to 10 percent of all income into an emergency fund. However, if you can’t afford this, don’t let that stop you from creating a fund. Anything you can place into an emergency fund and save for a rainy day is worthwhile. Just make sure you only use it for real emergencies.
5. Apply for a Secured Credit Card
Secured credit cards are different than unsecured credit cards. With an unsecured card, a lender gives you the card and you can start using it right away, typically with few fees or upfront payments. With a secured card, you pay a lender a certain amount of money and they give you credit in that same amount. You can then use the credit card and make payments towards your balance. Each payment you make will give you back that same amount of credit.
The lender you choose is important when applying for a secured credit card. Choose a bank or lender you want to remain with for a long time. Eventually, you’ll ask them to increase your credit limit or give you an unsecured credit card. Establishing history with a lender will make them more likely to approve those requests, which will help you rebuild your credit more quickly.
6. Apply for a Gas Credit Card
There’s a lot that’s taken into consideration when bureaus determine your credit score. They consider not only if you currently have debt, but what types of debt you have. As such, once you have a secured credit card, you should then apply for a gas credit card. This is a different type of debt, and credit cards from gas stations are relatively easy to obtain. Gas credit cards are typically more beneficial than retail credit cards. Gas is a necessary expense, so you won’t be tempted to purchase more than you need or go on a spending spree.
7. Don’t Close Your Accounts
When people cannot resist the temptation to spend money on their credit cards, they often close their accounts. This seems logical. If the account is closed, you can’t spend more money, so you won’t get further into debt. However, closing accounts can actually cause great damage to your credit score. This is because the bureaus consider how much credit you have available. After closing an account, that amount is reduced, which lowers your score. If you really feel as though you can’t resist the temptation to spend, put your card on ice or destroy it completely. This will remove the temptation without affecting your credit score.
8. Avoid Finance Companies
Finance companies and debt consolidation companies are in the business of making money. While there are some reputable companies out there, you will still be paying them for a service at a time that you’re trying to hold onto every dollar earned. Stay on track with a budget, savings, and slowly building credit on your secured cards, and you’ll achieve the same goal on your own.
Call a Florida Bankruptcy Lawyer for Help
Trying to rebuild your credit after bankruptcy is no easy task. You may even find creditors are still trying to sue you for discharged debt or that errors remain on your credit report. When that is the case and you need further help after filing for bankruptcy, call the Fort Lauderdale bankruptcy attorneys at Loan Lawyers. We are passionate about helping people before, during and after they file for bankruptcy so they don’t fall into financial hardship again. Call us today at (954) 523-HELP (4357) for your free consultation.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.