Improving your score after bankruptcy takes planning
Image Source: Flickr User Nicolas Raymond
For those consumers neck deep in debt and going under fast, bankruptcy can be a very helpful way to save yourself from financial disaster. Of course, filing bankruptcy will reduce your credit score, but the longer the time after you file, the less it will impact it. And you can start rebuilding your credit right after your bankruptcy – and within a year or two, it can be higher than it was pre-bankruptcy. Here are seven ways to improve your credit score after bankruptcy.
#1 Correct your report
The first task is to get your credit report a couple of months after your discharge and clean up any incorrect items. All accounts included in your bankruptcy should reflect that and not show any balance owing. Any accounts that don’t reflect this must be corrected. Also, look for any accounts that are not yours and may be the result of identity theft or reporting errors and clean those up too. With a correct report, you’re ready to go. Don’t assume your report is correct – most people have at least one error.
#2 Deal responsibly with remaining debt
Most people come out bankruptcy with carryover debt. This may include a mortgage, car loan, student loans, etc. Get yourself on a budget, pay your bills on time, and be scrupulous about keeping current on everything. If you’re struggling with student loans, pursue an income-sensitive repayment option. Make sure you don’t pay anything late and set cash aside for emergencies and retirement. Once your spending is on track, you’re ready to work on that credit score and get it back to what it was – and better.
#3 Start with a secured card
You’ll need to begin with a secured credit card, but you should pre-investigate first before you being making applications. Not everyone will be approved for a secured card, even though there’s technically no risk to the card issuer because it’s underwritten by a deposit. Creditors are looking for consumers they can work with in the future on an unsecured basis plus some cards will expand your credit line beyond your deposit. Do your research and only apply for a couple of cards you know you can get.
#4 Use your cards – but do so responsibly
Credit utilization rate is a big deal. The credit card companies want you to use the card I order for them to approve credit line increases or approve you for an unsecured card in addition to the secured one. Know your statement cutoff date. That’s the date that utilization is calculated. You never want to carry more than 30% on your cards. However, you can use your card and immediately pay it off without waiting for the statement thanks to web access to accounts and electronic bill pay.
#5 Don’t cancel older accounts
Another factor in your credit score is the oldest age of your credit files. If you obtain a secured account and then an unsecured card, you may be tempted to close out your secured card, so you have the cash deposit back and because you don’t need it anymore. But if it’s your oldest account, closing it will lower your average age of credit and can lower your credit score drastically and instantly. Best to leave existing accounts open, current and use them periodically but responsibly.
#6 Be careful with inquiries
Inquires lower your credit score. An inquiry is when you apply for credit – either secured or unsecured – and there are two types – hard and soft. A hard inquiry stays on your report for two years and is done when a lender runs your credit when you apply for something. A soft inquiry is when your credit is checked for other than a lending decision – like when you check it, an employer does, or for preapprovals. These won’t lower your score. A ton of hard inquiries all at once can be problematic.
#7 Ask for credit line increases
Once you have credit lines, paying before the statement date keeps your utilization low but shows the creditor you’re using the account. Even if they don’t earn interest from you because you don’t carry a balance, they earn fees from merchants when you use the card. After six months or so of positive usage and on-time payments, request a credit line increase. The more credit you have available (but aren’t using), the higher your score will be. Optimally, lots of available, unused credit results in a better score.
It is possible to raise your credit score significantly after bankruptcy, but you must be diligent and work at it. Your credit score won’t miraculously rebound on its own. And if you’re worried about the negative impact of filing bankruptcy on your score, consider that if you’re deep in debt, maxed out and paying late, your score will keep dropping every month that you remain in this state.
Contact the Law Offices of John T. Orcutt to schedule a free North Carolina bankruptcy consultation today. Call +1-919-646-2654 now for a free appointment at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington. Get the financial fresh start you deserve – we can help.