Bankruptcy Tips: How to Improve Credit Scores

If you’re wondering how to improve credit scores post-bankruptcy, then you should know that it’s never too early to start working towards that goal.  Even though the bankruptcy will remain on your credit report for 10 years, the sooner you show that you mean business, the sooner potential creditors will take you seriously.  True, it will be a long and arduous process, but one that will pay off in the long run.

Guide to Improve Credit Scores Post Bankruptcy

• First, look for ways to establish new credit. 

A secured credit card is an excellent way to do this.  These cards will require you to deposit a cash sum in a savings account in the amount of your desired credit limit, e.g., $500.  When you make purchases, the amount will be deducted from your savings, which you must then pay back as you would a monthly credit card bill.  Paying this debt on time for several months will help to demonstrate your fiscal responsibility on your credit report.  Some cards may eventually offer you a refund of your deposit and issue you a line of credit if you’re diligent with your payments.  Although the interest rate for a secured card can be as high as 21%, it’s well worth it if it can help to re-establish your credit worthiness. 

• Another way to improve your credit score is to obtain a small bank loan that is collateralized with your savings account. 

You can then pay on the loan over at least six months before paying it off in full.  If you choose this method, then make certain that your payments are reported accurately to all credit bureaus so that your credit rating will reflect your bill paying efforts. 

• Finally, an often overlooked tactic to improve your credit score is to join a credit union. 

These institutions are cooperative, not-for-profit entities that are owned and controlled by their members and, for that reason, they offer more personalized service to help individuals find solutions for financial challenges.  Credit unions generally offer lower interest rates on loans, higher yields on savings and more lenient credit guidelines on auto loans, credit cards and second mortgages.  Check to see if your employer sponsors credit union membership and if not, ask family and friends if they can sponsor your membership to join their credit union.  

• It is also important to be certain to stay on top of your personal finances. 

You’re entitled to receive one free credit report each year, so review yours to identify and to follow-up on any discrepancies.  Pay your bills on time, don’t purchase what you can’t afford and determine to stick to a monthly budget.  Over time, your credit will get back on track and you’ll be certain not to let it get derailed again. 

Getting Help

Before filing bankruptcy, your attorney should explain to you any possible alternatives you may have to settle your debt without bankruptcy. If this is possible, then your credit will be much less injured than if you declare bankruptcy. If you cannot find alternatives, your lawyer should assist you in understanding exactly how bankruptcy will work and what it can do to your credit.