Why It’s Important To Rebuild Credit After Bankruptcy
Bankruptcy gives you the relief of a clean financial slate but also the worry that you’ll never have decent credit again. It’s indeed true that your credit can take a big hit after bankruptcy as the negative mark can stay on your credit report for up to 10 years. However, filing for bankruptcy does not ruin your credit forever. Its impact on your credit score will fade with time. Personal bankruptcy is without a doubt a serious setback, but it can serve as a financial tool. It’s an opportunity to streamline your finances and rebuild credit.
Rebuilding credit after bankruptcy is essential for you to have better options in the future if you are to get credit again. If you follow through with financial responsibility after a bankruptcy, you can find yourself in a better credit situation in the long run. Find out more about how to build credit after bankruptcy below.
Quick Steps to Rebuild Credit After Bankruptcy
Here are a few general steps you can take to get your score back in shape:
- Keep all accounts current and check your credit report and score frequently to ensure everything is accurate.
- Get a secured credit card if you don’t have a credit card so you can start rebuilding your credit history.
- Don’t take on additional debts or loans unless you’re sure the payments, including the higher interest amount you’ll likely pay with a bankruptcy on your report, are well within your budget.
Step-by-Step on How to Rebuild Your Credit After Bankruptcy
Keep a close eye on your credit reports and credit scores
Inaccurate information on your credit reports can cause a low credit score. Therefore, be sure to review your credit reports after bankruptcy. If you find any inaccuracies, such as a delinquent account that doesn’t belong to you, you can report it to the appropriate credit-reporting agency. When the negative mark is removed, your credit score will likely rise.
Every year, you are entitled to one free copy of your credit report from each of the three major credit-reporting institutions: Equifax, Experian, and TransUnion. Take advantage of this and regularly examine your reports for errors or missing information. All consumers can access a free copy of their credit report through AnnualCreditReport.com. Free reports are typically only available once a year—but in the wake of the Covid-19 pandemic, consumers can access free weekly reports through April 20, 2022.
Get a secured credit card or a retail card
Secured Credit Cards
A secured credit card works just like an unsecured card except that you pay a deposit to the credit card issuer upfront and then borrow against it. You are still charged interest and on-time payments are reported to the credit bureaus. This helps you build a good payment history.
Retail cards and department store cards sometimes have relatively lenient credit approval requirements. Once you have several months of payments with a secured card behind you, you might qualify for a retail card even after bankruptcy. Retail cards have higher interest rates, but with on-time payments, your credit can be improved.
Every time you pay your secured or retail credit card on time, you will receive positive points on your credit report that will help counterbalance the negative effect of the bankruptcy.
Get a credit builder loan
Credit builder loans are another way to build your credit without having to qualify for a traditional loan. With a credit builder loan, you deposit money into an account. The lender keeps that money while you make payments on the principal and interest on the loan. These payments are reported to the consumer credit bureaus. After you pay back the loan, the money is released to you. Credit builder loans are typically offered by regional banks and community banks, and the loan amounts are small.
Become an authorized user on someone else’s card
If you have a relative or friend who has really good credit and allows you to become an authorized user on their credit card, it will help your credit score significantly. Being an authorized user means you have all the benefits of using that credit card, but none of the responsibilities for paying it off every month. That would be the cardholder’s responsibility and as long as he/she makes on-time payments, you ensure positive reporting.
On the other hand, if the cardholder is late with a payment or doesn’t make one at all, the negative reporting will show up on your credit report. Therefore, make sure the cardholder is a reliable, responsible person. And if you use the credit card for any purchases, make sure you settle up with the cardholder at the end of every month. While this isn’t as impactful as other methods of increasing a credit score, it can still be helpful as a part of a larger strategy.
Apply for a loan with a co-signer
If you struggle to get approved for a loan or rental agreement after bankruptcy, having a cosigner can help your chances of approval. A cosigner acts as a legal financial backer in case you don’t make payments. When you have a cosigner, you’re still approved for credit under your name. Making payments on these credit accounts can still help you boost your credit score.
Make on-time payments on debts not included in your Bankruptcy
Not all debts will be included in your bankruptcy. For instance, student loan debt can’t be erased by bankruptcy. Alimony and tax liens will remain on your tab, as well. You need to keep paying these if you don’t want your credit score to plummet even more. Repair your credit post-bankruptcy by making all of your payments on time and in full. Making consistent payments is key to building good credit.
Avoid job hopping
Job hopping doesn’t directly affect your credit score, but it can influence lenders. They want to know you have a reliable income and will be able to repay any loan they offer you. When reviewing your application for new credit or a loan, a lender considers your income, your job history over the past 24 months, your credit score, and other factors. Having a stable job works in your favor, boosting the lender’s confidence in your ability to repay your loan even after bankruptcy.
Apply for new credit cautiously
After bankruptcy, you may be tempted to apply for new lines of credit right away to improve your financial situation. However, it’s important to tread carefully when it comes to new credit applications.
Report other payment information
Some companies give you a way to build your credit history with payment information for things like rent, cell phone bills, or utilities. Following your budget and making these payments on time every month can help boost your credit score.
Practice Responsible Credit Habits
- Make consistent, on-time payments. Payment history accounts for 35% of your FICO Score calculation, so it’s imperative that you make on-time payments when rebuilding credit after bankruptcy.
- Keep your credit balances low. When your balance is low on your credit card, it means that you’re using a smaller percentage of your overall available credit. Experts recommend a credit utilization ratio of less than 30 percent. A low credit utilization ratio is one indicator to lenders that you’ll repay what you borrow.
- Build an emergency savings fund. If possible, you’ll want to make sure that a certain amount of your monthly income goes into a savings account. You do this by making the emergency fund one of the expenses in your budget. This will help you build a financial cushion in the event something goes wrong and help you avoid incurring future debt that can slow or even reverse efforts to rebuild your credit.
- Reduce your credit card use. Depending on how you arrived at bankruptcy, one of the biggest risks can be falling into the same habits that led you into financial trouble before. Reducing your credit card use or avoiding them altogether can temper the temptation to spend and reduce the likelihood of this happening.
- Stick to a budget. The most likely culprit in financial disaster stories is the failure to stick to a realistic budget. By keeping a close watch on your spending habits, you can make sure you stay within your means and don’t overspend. When you overspend, you might rack up more debt than you can reasonably handle.
- Take your time. Be patient. The amount of time it takes to rebuild your credit after bankruptcy varies by the borrower, but it can take from two months to two years for your score to improve. Because of this, it’s important to build responsible credit habits and stick to them even after your score has increased.
A bankruptcy never has to be looked at as the end of the world. Remember, you have a right to fail and try again. You can come back and be successful. By following a handful of proven methods, you can improve your credit score almost immediately. Even though bankruptcy can linger on your credit report for as long as 10 years, if you stick with the plan, it is possible to be back in the market for a car loan or even a home mortgage in as few as two years.
Credit rebuilding is a commitment and should be approached as such. With a little effort, organization, and a new relationship with money, a bright future is ahead for you.
Getting an Auto Loan After Bankruptcy
Getting an auto loan after bankruptcy can help you rebuild your credit since one of the consequences of the bankruptcy process is a lower credit score. As you make payments on time, you begin to build a positive payment history. Having a healthy mix of different types of credit, both revolving and installment accounts, is another factor that credit scorers use when determining a score. If you don’t have an installment loan on your credit report, then getting an auto loan might help your profile by creating a more diverse credit mix. No matter if you filed a Chapter 7 or Chapter 13, it’s typically possible to get a post-bankruptcy auto loan. However, you have to make sure you are with the right auto loan provider.
No worries, you don’t need to find the right auto loan provider anymore as you’re already in the right place. Here at Vancouver Auto Loan, we specialize in providing auto loans to folks like you. We can get you approved regardless of bankruptcy on your record. We have an auto loan package suitable to your needs. Our experienced finance team can offer you competitive interest rates and flexible terms that no other auto loan provider in Vancouver can offer. Apply here and get to know your options right away. We’ll be more than happy to assist you. Have your vehicle and boost your credit at the same.