Bankruptcy is an excellent tool for people seeking to manage their debts and start afresh. However, it impacts your credit score and could affect your ability to borrow. Your credit rating is crucial, as it determines your suitability for credit. Lenders will quickly lend to you if your credit score is high. But if it is low, banks and other financial institutions will avoid engaging with you. The few lenders considering extending your credit will charge a higher rate than the standard.
However, filing for bankruptcy does not mean you cannot obtain credit in the future. You can still grow your credit score and obtain credit at a favorable rate after bankruptcy. Though bankruptcy records remain in a person’s credit history for years, a competent bankruptcy attorney can help you revamp your credit rating. Here are some strategies bankruptcy attorneys recommend for achieving a favorable rating:
Closely Monitoring Your Credit Information
Your reports contain all the information you need about the loans you acquired and how to repay them. Typically, credit bureaus use information from your credit reports or creditors to compile your report and assign you a rating. They will consider the kinds of loans you have acquired, your repayment history, and your defaults. Creditors run financial background checks on their borrowers before extending credit to them. If you apply for a loan, your creditors will consider how you borrow and repay loans to determine whether to extend your credit.
Your credit report will contain the following information:
-
Your identifying details, including name and address, SSN, and employment history,
-
Credit amounts, including the loans you have acquired in the past and the ones you are currently servicing. This section will also provide your credit limit, whether you have late repayments or have defaulted on some of your loans.
-
The public record has information regarding tax liens, verdicts on cases creditors have brought against you, and verdicts on bankruptcies you have filed.
-
The inquiries section contains information about companies or entities that run background checks on you within a month.
The first thing to do to increase your credit score after bankruptcy would be to review and understand your report. Ensure that it is correct. You can acquire a copy of this report for free from a credit bureau. The bureau receives information from various sources every year. There is usually no guarantee that the details of your report are correct. The bureau can make mistakes when compiling reports, resulting in a lower credit score. Ensure that the information in the report is correct.
Here are some actions you can take upon receiving your credit history:
-
Correct all inaccurate details in your report. You can do this by contacting the bureau and explaining the mistakes you find. Ensure that all the negative entities in your report have an actual reason.
-
Only keep active credit accounts open, and close all inactive accounts. If you filed for the closure of any account and it still appears on your report, contact the bureau immediately to ensure the account is closed. Keep some of your old credit accounts active without incurring annual fees.
-
Ask the bureau to report positive information as well. Most creditors will only send your debt information to the bureau when you default or have a pending payment. They might not report positive information. Positive reports will boost your credit score.
-
Report a change of address to your creditors to ensure they can always reach you whenever they send mail. You can avoid late repayments and any other crucial information from your creditors this way.
-
Review your report as often as possible. You will be able to tell the progress this way. You can also fight anything that pushes your rate backward immediately if it happens to ensure you are progressing well.
Not Defaulting on Another Loan
The last place you want to be after filing for bankruptcy is where you were right before declaring bankruptcy. It is necessary to follow the repayment plan designed by your bankruptcy trustee to avoid defaulting on another loan. Remember that bankruptcy does not wipe out all your debts. If you file Chapter 13 bankruptcy, you will be repaying some, possibly all, of your debts within five years. There are also some debts the court will not discharge, including alimony and child support. You must keep up with the repayment plan to avoid falling back into the same financial trouble you were in before bankruptcy. You will also be able to revamp your credit quickly this way.
Asking Another Person to Add You as an Authorized User of their Credit Card
This is a strategy that can help you raise your credit. But you must carefully choose a person with a good credit history. The person must have an adequate repayment history, which will affect your attempt to rebuild your credit.
You can start by identifying such a person from your family or circle of friends. If the person agrees, they will request that their credit card company include you as an approved credit card user. They will provide the company with your details. You can purchase it on the person’s account if the company approves it. But you will not be responsible for the charges on their card and cannot change the information on that card.
Note: Being added as an approved user of someone else’s credit card differs from applying for a joint account.
The details from that account must reflect in your credit history so you can see some differences in your rating. When the account owner makes a payment on their credit card, it could trigger a positive result in your report. However, it will protect your credit if they are on time to make a payment or default.
Applying for a Credit-Building Loan
A credit-building loan helps you save and increases your credit rate after bankruptcy. You can apply for one from a credit union or community bank. Your loan lender can give you a reasonable amount on the loan to repay in small installments. In most cases, loan lenders consider your savings when giving out such loans. But like a typical loan, you must make monthly payments according to the repayment agreement. Once you finish paying the loan, the amount in that account will belong to you. Additionally, the lender will send a favorable report to the bureau.
This loan aims to obtain a favorable report that you are a trustworthy borrower capable of repaying credit. If you acquire credit after bankruptcy and make payments, ensure your creditors send that information to the bureau to boost your credit score. Here are the two types of credit-building loans you can apply for:
-
Pure Credit-building Loans
They help you save money and build your score. When you apply for this loan, the lender will not give you the funds you applied for. Instead, they will freeze the money in an account until they receive your last payment.
-
Share Secured Loans
You use savings as collateral to obtain these types of loans. The lender will freeze the account and a similar amount of every payment you make towards the loan. You receive the entire amount after repaying the loan, plus a better credit rating.
Applying for a Secured or Retail Credit Card
Even though bankruptcy is an excellent way to manage debt after a long struggle, it limits your ability to obtain credit and make purchases. However, you can still obtain credit or make a purchase by applying for a secured or retail credit card.
Secured credit cards require you to deposit money before creating an account with a credit card company. The credit card company holds the funds you deposit for as long as you keep using the account. You must use the card responsibly to boost your credit rating. You must also make timely payments on it. Pay must be on time to ensure your attempt to grow your credit is not in vain. Once you demonstrate your trustworthiness to the credit card company, you can acquire an unsecured credit card with added benefits.
Retail credit cards are perfect because they have low credit requirements. Even with a low credit score, it is easy to qualify for one. However, some have high interest. It is advisable only to take the credit you need and not more to avoid paying more interest. Also, make your payments on time to receive a positive report that could help improve your credit.
Using a Cosigner
Finding a loan lender willing to lend to you after bankruptcy can be challenging. However, having a cosigner can make the process easier and more successful. Remember that an effective way to build your credit score after bankruptcy is by obtaining and repaying credit on time.
A cosigner is a person who will agree to take responsibility for your credit if you default. They will assure your lender that the lender will not incur any losses by lending to you.
The consignor will not have a right to the loan. However, they will be accountable for any payments you default on.
Having a cosigner with a low credit rating is the easiest way to obtain credit. If you repay the loan per the lender’s agreement, your creditor can provide a favorable report to the bureau to boost your credit rate.
However, carefully consider this strategy, as it puts another person’s credit at risk of damage. If you default, your consignor will receive a negative rating and be responsible for your loan.
Applying for a Secured Loan
You need collateral to obtain a secured loan. Collateral can be anything valuable your creditor can sell to recover their money in case you default. Loan lenders are willing to lend to you even after filing for bankruptcy if you provide collateral for the loan. Collateral can be a vehicle, real estate property, or anything valuable worth more than the loan.
However, obtaining secured credit can take time and effort. The lender must first assess the condition of the collateral and determine its current value before lending to you. If they accept the collateral, you will have a longer payment period and can borrow more. The installments on secured loans are usually low, making them the best way to increase your credit.
Note: When using a secured loan, you must honor your repayments to build your credit. You will also retain the collateral if you make prompt repayments.
Practicing Excellent Credit Habits
After filing for bankruptcy, the last thing you want is to go through the same legal process after a year or two. Thus, it is crucial to practice good credit habits to avoid accumulating debts that will be difficult to manage afterward. Here are some of the strategies you can learn from a bankruptcy attorney to rebuild your credit and maintain a high credit score after that:
-
Always make timely and consistent repayments on your loan, including timely payments on your bills.
-
Keeping your credit balances low. If you must borrow, only apply for the amount you need.
-
Minimize your reliance on credit cards. You can avoid using a credit card altogether. This helps you avoid falling into more debt and overspending.
-
Start saving for emergency needs to avoid borrowing when an urgent need occurs.
-
Remain patient as you grow your credit, as it takes time
-
Once you are confident you know how to use credit, use it to your advantage. Do not charge more than 20-30% on a credit card; pay it in full.
Find a Competent Bankruptcy Lawyer Near Me
Filing for bankruptcy is a decision you make after all efforts to manage your debts have failed. You use it as a last resort to obtain relief after dealing with overwhelming debts. Even after going through the long and stressful bankruptcy process, you still have to worry about your creditworthiness.
If you recently filed for bankruptcy in Sacramento, you are probably worried about the consequences of your low credit rating. The good news is that you can rebuild your creditworthiness to an even higher rate than before. However, you must use the best strategies and remain disciplined to obtain credit at reasonable rates sooner rather than later. We can help you with this process at Sacramento Bankruptcy Lawyer. Call us at 916-800-7690 to learn more about our services.
