Rebuild Credit After Bankruptcy

Obtaining relief from your debt is the first step toward getting a fresh start.  I am the only attorney in Colorado to include post bankruptcy credit repair advice as part of my fixed fee. I have direct experience analyzing borrower’s credit worthiness for loans. My first job out of law school was with the US Small Business Administration during which time I helped qualify borrowers for loans and later worked in the loan compliance section. I understand which factors lenders review when approving loan applications. Rebuilding credit is important toward your future success. Your credit score goes beyond creditworthiness.

The clients who follow my advice rebuild their credit much faster than the national average. It is common for my clients to have a credit score in the mid-600s within 12 months after their discharge and to have a credit score in the mid-700s within 24 months after their discharge. Having a good credit score within two years is especially helpful to those who seek to purchase or refinance a home.

Ways To Rebuild Your Credit

While bankruptcy will typically cause an initial decrease in your credit score, in only a year’s time your score will improve. Adhering to the pointers below can help you rebuild your credit rating in the months and years following your bankruptcy.

Make On-Time Payments

One of the simplest ways to rebuild your credit after bankruptcy is to make on-time payments for your existing obligations. For example, if you have a mortgage, then making consistent, timely payments will be reflected on your credit report as a positive remark. This shows lenders that you are not in default and that you may be turning a corner regarding your financial health.

Keep Revolving Debt Low

If you still have a credit card after filing for bankruptcy, then you will want to keep the balance low to help boost your credit score. Outside of delinquency, one of the most devastating things to your credit is maintaining a high credit card balance. As a general rule, your credit card balance should never be above 30% of your credit limit.

Establish New Lines Of Credit

Contrary to what you may believe, there are lenders that cater specifically to those who have recently filed for bankruptcy. While the interest rate on the loans and lines of credit may be higher than average, they can help boost your credit if you make on-time payments and eventually pay them off. An example would be a secured credit card. It works by using some form of collateral (such as property or cash) to back the credit card, meaning that the credit card company could seize that asset in the event you are unable to repay your balance. These cards should only be used as a way to re-establish your credit and should not be heavily relied on or used to finance luxury purchases.

Create A Budget

The best way to avoid placing yourself in financial jeopardy is to live within your means. You can accomplish this by creating a monthly budget. Setting aside a certain amount of your income to go toward an emergency fund is also a good way to avoid becoming overextended. If you have filed for bankruptcy, then the required credit counseling courses should provide information on how to create and stick to a monthly budget plan.

Additional Guidance:

Once you receive your discharge, set a reminder to pull your credit report 30 days later. Review it for any debts that should have been removed and file disputes for any remaining debts.

• • Credit reporting is voluntary. Certain creditors will fail to update your credit report after you receive a discharge. Unless these debts are zeroed out, they will continue to prevent you from rebuilding your credit score.

Note: The higher your credit score is prior to filing bankruptcy, the easier it is to rebuild credit. If you can avoid it, do not wait to file bankruptcy until your debts have been charged-off or gone to judgment. The judgements will remain on your credit report after you file bankruptcy although you are no longer personally responsible for the debt. The credit agencies report the fact a judgment was obtained not whether it is collectable.

About judgments, if you own a home, the judgments automatically attach to your home. You may be able to remove the liens through the bankruptcy. Not everyone qualifies. Speak to your attorney if this applies to you.