Depending on your financial situation, filing for bankruptcy may serve as your best option to give you a clean financial slate and a fresh start. And while filing Chapter 7 and Chapter 13 bankruptcy typically comes along with major impacts and damages your credit score, it does not represent doom and gloom for your financial life.
By taking the right steps to rebuild your credit after filing for bankruptcy, you have a chance of attaining a healthy credit score – and a good credit history not only allows you obtain credit, but you can also get great rates. Although the impact of a bankruptcy may remain visible on your credit report for up to 7 or 10 years – for Chapter 13 and Chapter 7 bankruptcy respectively – its effect fades away over time. But how can you ensure your financial healing and fix your credit?
Maintain Good Financial Habits
Establishing good financial habits is crucial to rebuilding your credit. This means meeting up with your credit obligations and payments on time. Keep in mind that a delinquency will remain visible on your credit report for up to seven years before disappearing. A delinquency is a missed payment for a month – and while they are usually not reported to credit bureaus until you miss payments for two months, you will need focus and consistency in your credit payments for at least seven years to have a clean credit report.
Review your Credit
Fixing your credit only begins when you know where you stand, and how much effort you must invest to get your desired credit score. A credit score of 700 is considered good enough, 750 and 850 are considered excellent, and anything below 640 is regarded as being poor. Conversely, a credit score around 400 or even lower is considered very poor. With this knowledge, you will be better prepared to restructure your finances.
Avoid Past Mistakes
People file for bankruptcy for different reasons. Some may be due to spending outside their means while others may have experienced financial difficulties beyond their control. Whatever your reason for filing for bankruptcy may be, it would be ideal that you come up with a well-conceived and realistic plan to ensure things don’t go south again.
If you are prone to excessive spending, create a monthly budget that reflects your income and your expected expenses – and develop a strict plan to hold yourself accountable for working with the budget. You could develop a program that allows you to provide weekly updates to a friend who can help you stick to your plan. You may also come up with a positive reward plan to honor yourself each time you are able to save up money.
If your financial trouble occurred due to an uncontrollable event, it would be wise to start by building savings for the rainy day. This is a plan everyone should have in any case, but it is especially important if you tend to overspend.
Get a Secured Credit Card
After filing a bankruptcy, you wouldn’t have creditors sending you their best credit card offers. But the goal is to rebuild your credit. And to do that, getting a secured credit card can prove to be very helpful. Since you most likely have loads of late payments on your credit report, rebuilding this aspect of your credit score will be important.
You do not necessarily have to use your credit card to charge off all of your expenses. Instead, you can start off by selecting a bill per month with your credit card, then pay off the balance immediately. As you start meeting up with payments when due, your credit score will slowly increase over time.
Measure your Progress
After taking steps to avoid falling into financial trouble again, you must continue to monitor your credit. This is one of the best ways to ensure your efforts are paying off. Measuring your progress will give you a clear perspective of where you stand. Do you now qualify for an auto loan? Or are you better off settling for smaller loans?
You will also see whether your recovery is great enough to accommodate bigger projects such as buying a new home. Once you have your credit score springing back to life, ensure you maintain it that way for the next 365 days – and until your report is clean.
With a properly devised plan, you can create a comprehensive and actionable plan to rebuild your credit and maintain a positive payment history. When you are able to achieve this, you’ll soon be ready to come up with a strong application – proof that you are creditworthy.
If you still have questions about how Bankruptcy will affect you, rebuilding your credit, to improve your financial situation, and live in the Philadelphia, PA vicinity, please call the Law Office of Sharon S Masters for a free, no-obligation consultation. Attorney Sharon Masters will speak with you personally and can be reached at (610) 322-5277 or at [email protected].