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Rebuilding your credit after bankruptcy
If you owe more money than you can pay back, filing for bankruptcy can be a difficult decision. However, it is important to weigh the disadvantages with the advantages when making this decision. Bankruptcy can be a complicated process, but with the right information, you have a better chance at a successful outcome. Bankruptcy will have a major impact on your finances, but it will not last forever. Most debt can be eliminated after seven years, but student loans and car loans will remain on your report for ten years. Bankruptcy is a serious issue, and the longer it remains on your credit score the longer it takes to repair. Here are a few options that can help you rebuild your credit after bankruptcy.
Be sure to check out your credit report
Rebuilding your credit after bankruptcy will take time and effort. The first step toward credit repair is to obtain a free credit report from AnnualCreditReport.com. This allows you to see exactly what is listed on your credit report, so you can begin the process of clearing up any discrepancies you might find. Free reports are usually only available one time per year but may be available more often depending on the circumstance.
Anyone with a credit card knows a good credit score is important. It can affect your ability to get home loans, auto loans, and credit card offers. The three major credit bureaus – Experian, Equifax, and TransUnion – all collect, maintain, and report on consumer credit. It is important to review your credit reports regularly for accuracy and consistency. You should be able to spot any errors causing your score to go down like incorrect account information or inaccurate records. Your credit report will also help you confirm when your bankruptcy has been removed from your report.
Regularly monitor your credit score
The initial drop in your credit score after a bankruptcy can be 100 to 200 points or more. While the actual drop in score varies, typically your score should improve over time. Checking on your credit score monthly is crucial to improving your score after a bankruptcy. Many banks and credit card companies now offer free credit monitoring services to their customers. There are also free online services available such as creditkarma.com for example. Once your bankruptcy has been discharged, your credit report should indicate the changes were reported correctly.
Regular monitoring of your score should continue to avoid any further decreases caused by red flags that may signal identity theft or other issues. Issues such as inaccurate account statuses, civil suits you weren’t involved with, or fraudulent loan applications in your name are just a few of the things you should look out for. Increases in your score will occur slowly, but regular monitoring helps you stay motivated as your score improves.
Developing good financial habits
As your bankruptcy becomes a thing of the past, your credit score should improve. Developing good financial habits is required to rebuild credit after a bankruptcy.
These 5 steps will help you get started:
- Make regular payments on time
- Reduce any credit card usage
- Try to keep your credit balances low
- Build an emergency fund
- Take your time
How long does it take?
One of the most frustrating parts of filing bankruptcy is the length of time it takes to rebuild credit. The type of bankruptcy you filed for determines how long it will stay on your credit report. Chapter 7 bankruptcies last for 10 years while Chapter 13’s last for 7 years. After this time, you should begin to see improvements in your credit as all records that were discharged in the bankruptcy should be removed from the report. Other than that, the repair process will depend on the debtor having taken the proper steps needed to improve their score.
Rebuilding credit after bankruptcy is possible
The impact of bankruptcy as related to the credit score begins to decrease over time even before it’s cleared from your credit report. Due to the reduction of the consumer’s debt-to-income ratio, improvements may be seen in as little as two years once the bankruptcy is discharged. All in all, when the proper steps are taken, it is possible to rebuild your credit after bankruptcy. It won’t happen overnight, but with good financial habits and dedication to the rebuilding process, a good credit score is in reach.