Rebuilding Your Credit
Filing for bankruptcy may seem to have a long term effect on you and your credit. It can feel like you are a failure for being unable to repay your debts, but this is not the time to beat yourself up over what happened in the past, now is the time to move on and rebuild.
A bankruptcy can stay on your credit report for up to ten years and can significantly reduce your credit score. When this happens it can affect your ability to rent an apartment, buy a car, or make other major purchases. But there are many good things that come from filing for bankruptcy. You rid yourself of most debt, get a fresh start with your bills, and learn how to earn and spend money smartly.
There are some myths associated with filing for bankruptcy. For example, some people are lead to believe that they are disqualified from getting a house loan for a period of up to 10 years. This is not true. You can be in the middle of chapter 13 bankruptcy and still able to get a FHA home loan. There is also the false assumption that getting a credit card will be next to impossible for at least the next 7 years. This is also not true, many bankruptcy filers will receive many credit card offers from a variety of banks right after their bankruptcy is discharged.
There is also the myth that car dealers and lenders will approve your application but only with extremely high interest rates. This is also often not true. Most car dealerships will approve loans to individuals going through bankruptcy with normal interest rates.
Once you understand that these myths about filing for bankruptcy are just that, and you make the decision to file, you can immediately begin to rebuild your credit.
One of the most important steps to getting your finances in order is if you do not already have one, open a new checking and savings account. You should choose a local bank or credit union, and decide which one by comparing the various differences between them by looking at interest rates and fees to determine which bank will best suit your needs. Ask your friends about their banks, so you can get more information beyond just the numbers on their websites. Find out how fast they can access their money or what their fees are and how to avoid them.
The next step is to apply for a credit card and maintain a balance while making consistent payments on time. Start small, with a limit of 500 Dollars, and as your credit improves, see if you are able to raise the limit over time. The higher the limit and the lower the balance will lead you to you rebuilding your credit faster. Avoid signing up for credit cards that ask for high start up fees. Some card companies will ask for up to 200 dollars in order to open up a credit card for you, which is taken off of the balance you have on the card, so if you have a 500 dollar limit, nearly half of it is already taken up by that fee from the credit card company.
Also avoid a credit card company to make you call a 1-900 number that will charge you money for doing calling to talk to them and paying your card. You should also make sure that your transactions are being reported to all three major credit bureaus, you want them to know that you are keeping up and paying off the debts you have so that your score can begin to improve. Some banks might want you to wait a year after you have filed bankruptcy to get a secured card, if that happens you can continue to build up your savings until such a time that you can get a credit card.
Make sure the secured card you get is at a bank that you will want to keep using for awhile, you will eventually want to switch over to an unsecured card from the same bank down the road as you will want to upgrade to a unsecured card with this bank in the future.
Another key to rebuilding your credit score is to pay off your balance every month. While this might seem like an easy step, it is often one missed and may have led to filing for bankruptcy in the first place. While some people might tell you that carrying a balance is good for your credit score, that isn’t always the case. If you have bad credit, the credit bureaus want to see that you are able to pay off your balances on your credit cards every month, so only buy what you know you can afford to pay back at the end of the month, try to avoid letting a balance sit on your card if you can help it.
The next item to help rebuild your credit is that you get your credit reports from all three major bureaus. You can get one free credit report from each of the three bureaus every twelve months. This will allow you to see where your credit score is currently at, and help you figure out a goal as to where you would like to be in a year or two down the road. Make note on a calender when you got your free reports, so that you know what time next year you can request that year’s free credit reports.
Another key thing to remember to help you rebuild your credit score is to pay your bills on time. Most of the time when you don’t pay your bills on time you will more than likely get a late fee applied to your account, which will add another expense to pay and effect your efforts. Keep a strict calendar to remind you to pay bills as required by the biller.
Getting into the routine of paying your bills on time can help you get away from the bad habits that lead you down the bankruptcy path in the past, it may not be easy at first, but it will get better as time goes on, plus it’s better for your bank balance in the long run if you pay your bills on time. If you can’t pay all of your bills on time, then you should prioritize your outgoing bills so that the most important costs are covered, like electricity, heating and cooling, and food.
Another important item to note to help with your credit score is to dispute incorrect information on your credit reports. Also make note of who keeps allowing discharged debt to appear on your credit report. You can either call one of the three credit bureaus to dispute these issues or each company has a website with forms you can fill out to dispute these issues.
Disputing these issues is important, it is good to keep an eye on anything strange our out of place on your credit report, and to make sure that you are being treated fairly and that everything being charged is showing up correctly on your credit reports because that is the key in rebuilding your credit score back up again.
Lastly, an important step to helping you get back on your feet and rebuilding your credit score is to budget properly. You need to figure how much money you have to spend each month, and to make sure you live within your means,which means don’t over spend . Try to separate what you want to spend and what you absolutely have to spend each month. Start buy organizing by setting what you spend into categories. electricity, trash, and natural gas are expenses that you need to have and cannot remove, though I would suggest shopping around if possible to find cheaper prices though you can also lower some of them by conserving electricity use and avoiding wasting too much water. The next category is communication, you need to have a phone, either a land line or cell phone, but if your cell phone bill is costing you too much a month, you should look into a cheaper option, such as a prepaid phone plan which might be better for the time. The next step in rebuilding your credit score is to use the remaining money each month to help rebuild your credit. With the money you have left over after all bills have been paid for or the money set aside for them, you can make some purchases that are not necessary like entertainment purchases like movies or video games, or higher priced food items as well. The reason is that most of the bills you pay each month will not be put on a credit card, like rent or paying for groceries with a credit card. Doing so can be a detriment to rebuilding your credit score and begin taking you down the slippery slope that lead you to file for bankruptcy in the first place. Also, this keeps the task of rebuilding your credit from becoming a situation of life and death, so getting your score up isn’t a matter of either paying a bill or not eating. if your just doing this after the bills and living expenses are taken care of, it will not be as bad if a bank or credit agency denies you for something.
By planning properly, saving money, living within your means, and paying off your balance on your credit cards and avoiding payday companies, you can over time rebuild your credit score back to normal levels again. Though this will help you get your credit score up, some of these ideas are helpful to keep your financial situation on track and to help you keep your credit score healthy which is key for your financial future and to protect yourself and your money.