Each of your creditors report a number to three credit reporting agencies, and your overall credit rating is built from those reports. What your creditors report is typically based on how much you owe, how much credit is remaining, and what your payment history has been on those accounts. Obviously if you have had to file for bankruptcy, you will have already had some negative marks on your credit for high debt and late payments. So, how can you fix bad credit after bankruptcy?
What Does Bankruptcy Do to My Credit?
While bankruptcy relieves you of debt, it is one of the worst marks to have on your credit report. Bankruptcy remains on your credit report for nearly 10 years.
How Can I Fix Bankruptcy Damage to my Credit?
There are simple ways that you can begin to rebuild your credit after bankruptcy.
- Get better about your money overall. You will need to figure out what things you tend to do to get your finances derailed and fix it, if you want to have long-term financial freedom from debt and future bankruptcies. This involves the hard work of budgeting and being accountable to stick to a budget. It means paying for things with cash rather than credit, and using credit only to rebuild your credit rating.
- Limit the number of credit accounts you have, and be responsible with them. You can rebuild your credit by not having numerous credit cards, plus car and home loans, which are all maxed out! After bankruptcy you should try to limit your accounts, and have a plan to pay them in full and on time, every single month.
- Plan to use secured cards. You can open secured credit cards, which are backed by a precise cash amount. For example, your secured card can be backed by $1,000 in cash reserves, which means you cannot spend more than $1,000 ever on that card. You do this to help rebuild your credit rating, since simply spending with cash will not necessarily improve your credit score.
- Contact your previous creditors. Sometimes communicating directly with your creditors, those whose balances were satisfied by the bankruptcy, can help improve your credit rating after bankruptcy. For example, if you were late on a student loan payment, and that loan was listed as 8 different entries on your credit report for 8 different college semesters, you may have had 8 different entries paid by the bankruptcy. You can request to have those entries consolidated, or ask your creditors to stop reporting to credit agencies all together. This can help improve your overall credit rating.
Getting Help
Before declaring bankruptcy, it is important to understand the exact affect it will have on both the debts you have outstanding and on your credit score. Your attorney can explain to you what types of bankruptcy you can file, what will be most advantageous in light of the debt you have and the income you make, and how you can take steps to minimize the adverse impact on your credit.
