One of the most commonly-held misconceptions about filing bankruptcy is that it will ruin a person's credit score for life. Many people who are in dire financial straits hesitate to seek the protection of bankruptcy because they believe that it will put them in an even worse position financially. Instead, they fall further behind in their bills, amass more late fees and have more accounts go to collections. The truth is that it is possible to rebuild credit after filing bankruptcy by following some simple steps.
Clean up credit reports
When trying to improve a credit score after bankruptcy, the first step a person needs to take is a review of his or her credit reports. It is important to review credit report from each of the three major credit reporting bureaus to ensure the reports accurately reflect all of the debts that were discharged in bankruptcy. Discharged debts that are still reported as delinquent on a person's credit report will negatively impact a person's credit score. If a person finds inaccuracies on a credit report, it is imperative to contact the credit reporting bureau issuing the report to correct them.
Secured credit cards
A way for a person to rebuild credit for life after bankruptcy is to show lenders that he or she can be responsible with money. One means to do so after filing bankruptcy is by obtaining and using a secured credit card. A secured credit card requires the cardholder to place a deposit with the card issuer equal to the credit limit on the card. The deposit earns interest while the card issuer holds it, but the card issuer also has the right to use the funds to pay off the credit card bill should the cardholder become delinquent in payments.
When looking for a secured credit card, people need to make sure that the card issuer reports activity to credit reporting bureaus, otherwise the card will not help improve credit. Additionally, people will want to open cards with credit limits higher than $300, otherwise using the card will not help a person's credit score very much.
Once a person obtains a secured credit card, he or she should use it regularly to build a history of positive credit use. People need to make sure that they pay off the entire balance immediately after using the card, or at least pay the balance monthly. People should also take care to never use more than 35 percent of their available credit at one time, or their credit scores will fall.
Keeping current with bills
In addition to regular use of and payment on a secured credit card, a person trying to rebuild credit after bankruptcy can also use existing bills as a means of rebuilding credit. The debt discharge in bankruptcy gives people the opportunity to eliminate most of their debts so they can reorganize their finances. Without the oppressing cloud of these debts hanging over them, people can pay their remaining bills more easily. Making timely payments on rent, utilities and other monthly bills can help improve a person's credit score, as well.
Many who have overwhelming debts continue to miss payments on bills, suffer creditor harassment and continually max out credit cards while trying to scrimp by. Fear prevents many from seeking the protections that bankruptcy can offer. It does not have to be that way, though. If you have questions about filing bankruptcy, speak with a skilled bankruptcy attorney who can discuss your circumstances with you and review all of your options for debt relief.