Find out tips to improve your FICO score after bankruptcy
Image Source: Flickr User JD Hancock
The ability to obtain credit will remain important throughout your life, which means that if you’re considering bankruptcy, you should already be considering how to improve your credit score after you file. Even if you don’t want to use credit after filing bankruptcy because you’re worried you’ll mess up your finances again, credit is still a factor in life. With that in mind, here are some tips for to help your rebuild your credit score after your bankruptcy discharge.
Why you need a good credit score after bankruptcy
Even if you feel like you’ve been burned by credit cards, there's more to your credit score than just the plastic. You need good credit to get an affordable auto loan, a mortgage, or competitive rates on auto insurance and other necessities that rely on credit rating to assess the rates you pay. This can include utilities, cable, cell phones and more.
And, unfortunately, you typically can’t have the things you want in life without incurring some debt. In fact, debt can even be healthy if it’s managed properly and doesn’t outweigh your ability to pay. For example, while you may be able to save up money and buy a used car for cash, if you want to own a home, you’ll need a mortgage. Your FICO score determines how much you’ll pay in interest and how much of a down payment you'll need.
Restarting credit after bankruptcy
The first step to improving your credit after a bankruptcy is to review your credit report for accuracy to make sure all accounts included in the bankruptcy reflect a zero balance. Get any items fixed that are incorrect and then assess your current score with each of the three credit bureaus. Once your score is squared away, the next steps to consider are:
#1 Get a secured credit card. Even though a secured card isn’t a credit risk for the card issuer, you can still be turned down. It pays to do your homework. Check out what credit score and other requirements the card issuers need, then apply to one or two for which you are a good fit. Use those cards responsibly, never charge more than 30% of your balance, and pay in full each month, being sure to do it on time, every time.
#2 Pay all your bills on time. Not only will this keep any collections or negative items off of your credit report, but it also gets you into the habit of managing your money responsibly. Immediately after bankruptcy is a good time to examine your bills and expenses and pare back where you can. It’s crucial that you can pay all your bills on time and save money as well.
#3 Save, save, save. You need to save for several reasons and in different ways. For the long run, you need to save for retirement. If your company offers 401(k) matching, be sure to max that out. You also need to save up an emergency fund to provide a buffer in case something comes up like a car repair or other emergency need. Then there is saving for things you want, like a vacation, so you don’t credit spend in order to fulfill those wants.
#4 Borrow responsibly. If your bank or credit union offers signature loans (an unsecured loan), borrowing a small amount and paying it back promptly can boost your credit score. You shouldn’t spend the money – just set it aside and use it to pay back the loan. Paying it back early is a good idea, but not right away. A positive payment history of six to 12 months of on-time payments can boost your score more than borrowing and paying back immediately.
#5 Apply for unsecured cards. Bear in mind that inquiries for new credit can lower your credit score, so you want to apply wisely and not too much at once. As with secured cards, investigate the requirements to get a certain credit card and only apply for ones you are assured to get. Keeping your older secured accounts open can also be helpful because the age of your credit history matters as well.
Take it slow
The key to rebuilding your credit history is to take it slow and steady and don’t get in over your head again. Within six months (give or take), you should be able to get a secured card or two and within a few more months, an unsecured card. Surprisingly, the main thing to remember about credit is that your score will flourish if you have lots of credit available, use it sparingly, pay on time every month, and keep your card balances close to zero.
To find out more about how bankruptcy can help you get a fresh start and a higher credit score sooner than you think, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 now for a free North Carolina bankruptcy consultation at one of your convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.