If you are hopelessly struggling with debt, you may be reluctant to seek the bankruptcy relief that you need, because you are afraid that it will ruin your credit. Although bankruptcy will likely negatively affect your credit score in a significant way, its effect is immediate and temporary. In the long run, you will find this alternative better than doing nothing and letting your financial problems get worse, which can harm your credit score more than bankruptcy could.
It is true that once you complete bankruptcy, your credit score will be lower than before you filed. However, you will also be free of most of your pre-bankruptcy debts and better able to manage your finances. This puts you in a prime position to work on getting your credit score back to respectable levels. You will likely find that your low credit score is a temporary setback that you can remedy in as few as a year or two, if you take certain measures.
Know the damage
Your credit score is derived from the information on your credit report. Therefore, it is important to order your credit report from the three main credit reporting bureaus to ensure the accuracy of its contents. In some cases, the report may list debts that were discharged in bankruptcy as outstanding. Having the bureaus correct this and other errors can immediately affect your credit in a positive way.
Don’t neglect your bills
Since up to 35 percent of your credit score is affected by your history of paying bills, it is vital to ensure that your rent, mortgage, car loan, utilities and other monthly bills are timely paid each month. If you have problems remembering when a bill is due, consider setting up automatic reminders on your computer or smartphone.
Begin using credit
It may seem surprising that one of the best ways to rebuild your credit after bankruptcy is to use credit. However, it is important to not let your spending get out of hand, or credit use will do more harm than good. Since you will likely be inundated with high-interest credit card offers after your bankruptcy, once way to keep your spending in check is to get a secured credit card. This type of credit card requires you to put a cash deposit in an interest-bearing account. The amount of the deposit determines your credit limit, so you cannot charge more than you have.
Once you have a credit card, keep your monthly spending well below your credit limit. Start by charging smaller expenses that you can easily pay off in full each month, such as your phone or utility bill, and slowly build up from there. Over time, the credit reporting bureaus will take notice of your responsible use and raise your credit score accordingly.
If you diligently work to improve your credit score after bankruptcy, you will find that your score will likely recover faster than you anticipated. In fact, with a reasonable effort, you will find that your score is high enough to qualify for a loan or mortgage within a couple of years after bankruptcy.
If you are struggling to stay afloat, it is important to not wait until the last minute to do something about it, as doing so may severely limit your options. To learn about possible solutions to your problem, contact the experienced bankruptcy attorneys at Mariano & Coiro, P.C.