How to raise your credit score after bankruptcy
In today’s world, your credit score is one of the most important numbers that affect your life. When you apply for any type of credit, such as a loan, mortgage or credit card, lenders use your credit score in their approval decisions. A good credit score can mean you will get approved for the loan at the most favorable rates.
The decision to file for bankruptcy is a difficult one, as it can affect your credit score in addition to your finances. It is true that bankruptcy stays on your credit report for up to 10 years and can adversely impact your credit score. However, it is possible to rebuild credit after bankruptcy and minimize its negative impact on your credit score.
Check your credit report
An important first step in rebuilding your credit is to check your credit report and see where you stand. You can obtain one free copy of your credit report per year from the three major credit-reporting agencies from AnnualCreditReport.com. As errors or inconsistencies on your credit report can lower your score unnecessarily, report any errors so they can be corrected.
Make timely bill payments
Paying your bills consistently and on time is very important for a healthy credit score. About 35 percent of your credit score is determined by your payment history. It is therefore important to ensure your rent, utilities and credit cards are paid on time. On-time payment can also help you qualify for a loan or mortgage, as lenders generally will look back a year in your payment history for irregularities.
Credit cards can help
Using a credit card responsibly can, over time, cause your credit score to increase. A secured credit card — a card that requires a deposit in an account to secure your credit limit — may be the easiest type of credit card to qualify for right after bankruptcy. Make sure to confirm with the card issuer that your payment history will be reported to the three major credit-reporting agencies. Your responsible use of the card will likely go unnoticed if it is not reported.
Refrain from closing accounts
Many people think that their credit score will increase if they close lines of credit or cancel credit cards. However, this tends to have the opposite effect, as it reduces the amount of credit available to you, which lowers your credit score. Therefore, it is better to keep the accounts open and not use them.
With time and responsible financial behavior, you can return your credit score to the levels they were at before bankruptcy. Although it can be challenging, you should not let the possibility of a low credit score discourage you from filing bankruptcy if you are in a difficult financial situation. Contact an experienced bankruptcy attorney to learn if bankruptcy is right for you and how it would affect your situation.