Raising Your Credit Score After A Bankruptcy

Obtaining and managing credit wisely after bankruptcy is key in rebuilding your credit.

For whatever reason, many people find themselves behind on their bills, but are afraid of filing bankruptcy, because they fear that it will ruin their credit. Although your credit score will suffer some, in most cases, filing bankruptcy will cause the least amount of suffering. In fact, if you do nothing to relieve yourself of your debt, your creditors may eventually get a judgment against you, garnish your wages or repossess your assets, all of which are more harmful to your credit score than bankruptcy.

Bankruptcy is not a debt relief gimmick, but a legal way of getting rid of your debt. If you file for Chapter 7 bankruptcy, your unsecured debts (e.g. credit cards or medical bills) are eliminated. Additionally, you can resolve secured debt (e.g. mortgage or car loan) that you cannot afford by simply returning the collateral. On the other hand, if you file Chapter 13 bankruptcy, you can become current on your secured debt over a three to five-year period, while eliminating most of your unsecured debt.

After you complete bankruptcy, your credit score will be lower than what it used to be, but the effect is only temporary. Although you may not immediately qualify for a loan or mortgage, credit card companies will still extend you credit, since they know that you are no longer struggling with debt that you cannot afford.

Rebuilding your credit

Although credit is available to you after bankruptcy, you should be careful about accepting new credit cards, because many of them will have high interest rates. However, if you only charge as much as you can afford to pay off in full each month, using credit cards is an effective way to raise your credit score. If you are prone to overspending, consider obtaining a secured credit card instead. This type of credit card requires you to deposit funds into an interest bearing account. The amount of funds in your account determines your credit limit, which prevents you from spending more money than you have.

Aside from using credit cards wisely, you can also reestablish your credit by doing a couple of other commonsense tasks. Paying off your bills (e.g. rent, mortgage or utilities) on time each month is a great way to boost your credit score, since payment history determines up to 35 percent of your score. Additionally, it is always a wise decision to request a copy of your credit report from the three main credit reporting bureaus. Report any inaccuracies, such as outstanding pre-bankruptcy debts, to the bureaus immediately, as they can affect your score negatively.

Rebuilding credit is a rather slow process. However, assuming responsible credit card use and diligent payment of bills, it is possible to return your credit score to pre-bankruptcy levels in as few as two years. If you are struggling with debts that you are unable to pay, it is important to get help before your situation gets worse.  Our Attorney’s can explain the options available to you and recommend the one that is best for you. Contact us at  (303) 438-8477.