7 Tips for Rebuilding Your Credit After Bankruptcy
1. Maintain a Steady Income
While your monthly income and employment aren't directly reflected in your credit score, lenders do want you to have steady pay and want to see that you don't hop from job to job. Having a steady income, especially for two years or more, can help to reassure lenders that you will have the necessary funds to pay back any new lines of credit you receive. This is the first step toward rebuilding your credit.More than this, having a steady and reliable income allows you to better plan out your finances and make good decisions with your money. By knowing exactly how much income you will have now and in future months, you can choose to only take on new debts that fit comfortably with your monthly expenses. Steady income can also give you relief from the anxiety and stress that often comes with financial uncertainty.
2. Make a Budget and Stick to It
In addition to having a steady income, you need to make a detailed monthly budget and stick to it. Writing down your monthly income and any known expenses will help you to properly see what remaining income you will have to allocate elsewhere. This allows you to proactively use those funds to further pay down any debts or start a savings account to give you stability for the future.Make sure that you include all of your monthly expenses in this budget. Quite often, small payments and bills can add up quickly and may drain more of your income than you realize. One of the key steps to making better credit decisions is to be honest with yourself about your financial situation and to be careful to not take on more than you can handle.
3. Keep Remaining Accounts Up-to-Date
After filing for bankruptcy, you'll likely have remaining accounts that are still open and require ongoing payments. You should make keeping the payments on these accounts up-to-date one of your highest priorities when making your monthly budget. Demonstrating that you can make all of your payments on time and in full will help to show creditors that you can be relied on to repay your debts.
Paying down these open accounts will also help you lower your overall debt-to-income ratio. Lenders look at what percentage of your monthly income goes to your monthly debt payments and use this to determine how well you would be able to repay any new lines of credit. Having debts that amount to less than 30% of your income is considered excellent by many banks, with debt in the 30-36% still being considered good.
4. Apply for a New Line of Credit
Once you've gotten a handle on your current financial situation and have begun paying down any debts, you can begin to build your credit score further by applying for a new line of credit. Try not to make too many credit requests, as each will place a hard inquiry on your credit report which can lower your score. Only apply for lines of credit that you can reasonably afford, and remember that it is important to only utilize a percentage of the available credit line.
If you find that you're unable to get a new line of credit on your own immediately after bankruptcy, consider applying for a loan with a co-signer. Asking a trusted friend or relative to co-sign on your loans improves your chances of being approved by the bank since it gives them the reassurance that you have a financial backup. A co-signed loan still affects your credit - for better or for worse. Over time, on-time payments can raise your score.
5. Be Cautious About Using Credit Repair Agencies
Many credit repair agencies target consumers during the bankruptcy process, promising that they can raise your credit score to often unreasonable levels. These types of programs always warrant caution, as they can be rife with scammers seeking to take your hard-earned money and leaving you worse off than when you began. These programs can take away income that could have instead been used to pay off debts and improve your credit score naturally.
Most people facing bankruptcy are at that point because of genuine debts that they have incurred. Unfortunately, many of these credit repair agencies take large fees for their services and try to raise your score by disputing these debts. This can temporarily improve your score, however, in most cases, the credit agencies will determine your debts were authentic and your score will plummet once again. It's often lots of money, for little reward.
6. Keep a Close Eye on Your Credit Score
At the end of the day, the best path forward for repairing your credit is to manage your finances and work hard to decrease your debts. Even then, you should always keep a close eye on your credit score to ensure that your debts are reflected correctly and there are no errors you need to report. Your bankruptcy should only appear on your credit for a set time- seven years in the case of Chapter 13 bankruptcy or ten years in the case of Chapter 7.
There are many free credit reporting agencies online that you can use to get your credit reports. Just be sure to choose one that is trustworthy and check your score regularly. You especially want to ensure that your on-time payments are reported correctly so that they can improve your score and will be visible to lenders.
7. Get Recommendations From Your Bankruptcy Lawyer
When it comes to navigating life before and after bankruptcy, you don't have to figure it out all on your own. An experienced bankruptcy lawyer is there to help you understand your options and to offer advice on how to proceed after your bankruptcy. You should take advantage of their knowledge and expertise and use it to guide you as you rebuild your credit.
Advice isn't the only thing a good lawyer can offer you after your bankruptcy. Your lawyer may also be able to assist you in lowering any new debts through debt consolidation or a settlement. These solutions may be able to help you better manage any ongoing debt burdens and pay them off faster than you would typically be able to on your own.Contemplating your financial situation after bankruptcy can be a bit daunting, but don't stress. You can easily rebuild your credit by taking proactive steps to control your finances and make smart decisions with your money. Before you take any steps, contact the law office of Thomas K McKnight, LLP to discuss possible bankruptcy solutions and to craft a debt relief plan that works for your situation.