After filing for bankruptcy once, most people simply want to move on to healthier finances for good. But there is a bit of a struggle ahead as you work to improve your newly bottomed-out credit score. Filing for bankruptcy immediately causes your credit score to fall quite a lot, but that doesn’t mean it’s impossible to get it back up.
In fact, you may find it easier to get certain types of secured credit line, because your debt-to-income ratio just became much more income-heavy. In addition, you can’t file a Chapter 7 bankruptcy again for another eight years, so a creditor knows that you won’t be able to get out of payments any time soon. This makes it fairly easy to start easing back in to the world of credit.
1. Start with a thorough check of your credit score.
Before you do anything, it’s a good idea to get an in-depth look at what is on your credit score. Now that many debts have been wiped away, you can more easily see if there are many mistakes that need to be addressed. How much your credit score will change after a bankruptcy really depends on a lot of things, but knowing is half the battle.
The bankruptcy will be on your credit report for 10 years, so arm yourself with the knowledge of the starting line, and you’ll be able to move forward.
2. If you choose credit cards, stick with secured only.
Most people who file bankruptcy will begin with a secured credit card to get their credit score back up. A secured credit card is basically a pre-paid card, in which you give a bank an amount of money, and they keep it in a special account for you. You have a card that can spend anywhere from 50% to 100% of that deposit, and in many cases, the deposit will earn interest. Most of these cards have an annual fee.
The only reason to use this type of card, rather than just using your debit card, is that banks report these to your credit report like a credit card – and that gets your score up much faster. Money gurus recommend keeping your credit card balance at less than 10% ideally, or less than 30% on a good day, to ensure that you don’t become overwhelmed with debt again.
3. Just avoid agencies that tell you they can fix a bankruptcy and get your credit healthy.
These companies do not do anything you couldn’t do on your own. They’ll help you check your credit score, they’ll advise that you look for secured lines of credit, and that’s about it. No agency can make a bankruptcy disappear off your credit score before the 10 years is up. You will end up paying for a service you never needed in the first place.
4. Put your budget on auto-pilot as much as possible.
It is far more common than you may think for bankruptcy filers to end up filing again a second time later. When you set up your bills and debt payments after a bankruptcy, put as many as possible on auto-pay. Be sure that a simple oversight in your busy life doesn’t cause you to fall under the pressure of debt again, when a simple calendar reminder would have saved you. By paying off your new debts in a timely manner, and by keeping your bills caught up, your credit score will eventually begin to rise again.
To learn more about filing bankruptcy in NYC, contact my office at 212-244-2882.