So, you’ve successfully discharged your bankruptcy. Now it’s time to embark on building better credit. Being proactive immediately after bankruptcy will set the tone for your credit health and financial stability down the line; hence it is advisable to consider all approaches to make for a smooth, fast and efficient reconstruction. If you are employed, it is easy to set aside living expenses in a savings account based on a monthly budget for you to have the freedom to take other strategies to recover your credit. That said, you have to be aware that filing for bankruptcy is no longer an option for you—at least for a few years, and credit may be hard to acquire within this period, hence the need to have extra reserves of cash for yourself.
Impact of bankruptcy on your credit
Time is a healer, but the immediate effect of bankruptcy is that your credit is immediately going down, and it may take some time before you overcome its impact on your credit report.
If you filed for Chapter 13 bankruptcy, you will be glad to know that your bankruptcy only appears on your financials for up to seven years commencing on the date you file the bankruptcy. Typically, a Chapter 13 bankruptcy lasts three to five years, meaning you have between two to four years of it appearing on your credit report. Once this period lapses successfully, you have nothing to worry about. You are in the clear.
If you filed for Chapter 7 bankruptcy, though, the bankruptcy incident could stay on your report for up to 10years from the day of filing. This type of bankruptcy is usually shorter, typically lasting between four to six months. Also commonly known as liquidation bankruptcy, a Chapter 7 bankruptcy normally involves selling off your assets to repay your creditors. This is different from a chapter 13 bankruptcy, where you work with a trustee to pay off your debts. For this reason, a Chapter 7 bankruptcy generally lasts longer on your credit report compared to Chapter 13. Therefore, if the goal is to clear up the debt and recover from bankruptcy as soon as possible, you are better off going with Chapter 13 bankruptcy.
As is usually the case, having more debt to discharge will hurt your credit report, and expect the consequences of bankruptcy to match your level of credit.
Rebuilding and repairing your credit after a bankruptcy
Your type of bankruptcy notwithstanding, the best strategies for building back your credit depends on your understanding of what aspects of your financials define your credit profile and how to take on future credit responsibly. Your credit score is made based on your payment history, amounts owed, length of credit history, credit mix, and whether you have new credit. These are what your FICO credit score entails. So, if you make your payments on time, you are on your way to good credit.
However, credit doesn’t come from not borrowing at all; you need to report some credit during the period to qualify for good credit terms. Some credit facilities like mortgages, auto loans, secured and unsecured credit cards, certain personal loans, and credit builder loans will report to a CRB on your credit. Hence, paying them on time is advisable. With the help of credit reporting services, you can make other expenses like rent, bills, and monthly subscriptions count towards your credit report. Missing or making a late payment will also likely send your account to collections which may also adversely affect your credit score.
During this period, you have to be vigilant about the report’s accuracy. Check to see that discharged payments are marked as discharged; otherwise, it hurts your credit score further. According to the FTC, one in five people had an error on their credit cards, so it’s worth going over it to ensure that everything is reported accurately. Check with a credit reference bureau for the details of your credit report.
There are other trusted techniques like taking a secured credit card or retail card or co-signing on a new credit card or loan or becoming an authorized user of an account. But it is also important to avoid common pitfalls like falling for credit repair scam, changing jobs frequently—it shows instability, and having a low account balance which negatively influences your creditworthiness.
Bankruptcy law is complex, but it’s second nature to attorney Charles H. Huber. Charles analyzes your circumstances and explains your options. He answers your questions in plain terms that are easy to understand. Give Charles H. Huber a call today at 314-298-0305 to find out what filing for bankruptcy can do for you.