You’ve filed bankruptcy and your credit is likely as low as it’s ever been. But it doesn’t have to stay that way. The moment you declare bankruptcy, there are actions you can take to immediately start rebuilding your credit.
Here’s how to start improving your credit score right after a bankruptcy event.
Do a Careful Credit Report Check
Look over your credit report. Then look over it again. Carefully check that each and every account is being reported properly.
Old debts that were wiped out should indicate a “BK” status. Debts that aren’t reported properly can continue to damage your credit score, so make sure that any cleared debts are indeed being reported properly.
Pay Your Mortgage On Time
If you managed to keep your house in the bankruptcy process, make sure you do everything in your power to pay your mortgage on time.
Your mortgage has a bigger impact on your credit than anything else. If you can manage to keep it current, that’ll really help your credit score. If you go delinquent on your mortgage, the rest of the techniques in this article won’t help all that much.
Get a Secured Credit Card
Get a secured credit card to start building up your post-bankruptcy creditworthiness.
A secured credit card entails you putting down a small deposit, usually between $300 and $1,000, to open a cash-backed account.
Your money will be held as collateral. You can then use your card as a credit card. Pay it off every month, on time, to start rebuilding your credit.
Make sure that your card is being reported to all three credit reporting agencies.
Cutting Your Spending
Having to file bankruptcy means that at some point in your life, you spent more money than you really had. In order to prevent that from happening again, you need to make sure that you’re regularly making more money than you’re spending.
Any additional cash you earn can be used to improve your financial situation. It can be used on improving credit, paying off debts that weren’t wiped out during bankruptcy, or building savings.
Start by cutting back on auxiliary spending. Move into a smaller house or apartment if you can. Try to save 10% to 20% of your income every month.
Make a Small Installment Purchase
Generally an installment purchase is treated differently on your credit report than revolving credit (e.g. credit cards). They’re treated with more weight.
Typically an installment purchase includes car loans, home mortgages or even furniture purchases that are paid off in installment form.
Make sure that any installment purchase you make is reported to all three credit reporting agencies. Getting an installment loan and paying it off on time regularly can do a lot for rebuilding your credit.
Remember, if you apply these techniques, your after-bankruptcy credit can improve to the point where you can open new unsecured accounts within 2 or 3 years.
Aaron G. Adams is an Editor and Credit Attorney at AdamsCredit.com