While you may have believed filing for bankruptcy was the hard part, the genuinely tough work comes in when you have to recover from a life-changing financial decision like that. Bankruptcy does a tough number on your credit score and can leave you feeling financially broken for awhile. Fortunately, you can recover, and faster than you may believe. Included here are a few tips to help you recover from bankruptcy more quickly.
The best step to help you rebuild your credit score after bankruptcy is by making regular payments on your debt. This means easing onto the bandwagon slowly and simply ensuring you don’t overreach yourself again. Paying every debt monthly will help you build good rapport with creditors and prepare you for responsible money management when you take out new debt.
Open a Secured Credit Card
Secured credit cards are fairly simple to establish and will help you build up your credit immediately after filing for bankruptcy. To open a secured credit card, visit your local bank, open an account and make a deposit. You will then be able to apply for a credit card that equals anywhere from 50% to 100% of your deposit amount.
Secured credit cards are one of the best options for people who struggle with borrowing money, as you are literally borrowing your own money from the bank, but unfortunately paying them interest on it. You can build your credit score up far more quickly if you use this lending method immediately after bankruptcy and get yourself up to a 650 score to find better lending options.
Once you have rebuilt your credit to around 650, you may want to look for new lending opportunities. Those who file a Chapter 7 bankruptcy will see an immediately decreased debt-to-income ratio. However, they will also see a completely shot credit score and borrowing possibilities. Some lenders may actually look at you as a favorable option because you cannot file for Chapter 7 bankruptcy for another 8 years.
Lenders may see this as a good opportunity to give you higher interest rates and will accept you as a lendee. The trick is to accept the lending, but pay back on a monthly or quarterly basis. Your interest rates may be astronomical, but if you don’t allow the interest to pile up, you can buy back a better credit score more quickly.
Chapter 13 debtors will face a longer period of reducing their debt-to-income ratio but should significantly improve their spending and money management skills. Chapter 13 debtors face 3-5 years on a strict budget which should vastly improve their ability to pay back loans on time. This can make you more appealing to lenders in the future and help you rebuild credit.