Life After Bankruptcy
Though your credit score will take a considerable hit after you declare bankruptcy, it is possible to rebuild it over time. It may take several years of hard work and sacrifice to improve your score, but the results are worth your while. Your first priority after you declare bankruptcy should be avoiding credit cards and paying all of your bills on time. You will quickly find that there is no shortage of lenders willing to offer you loans after you declare bankruptcy, but these loans usually have outrageous interest rates and terms that you want to avoid at all costs. In this post, we’ll discuss more about life after bankruptcy and give you tips on fast-tracking your road to credit recovery.
Get a Secured Credit Card
Secured credit cards are an excellent way to start rebuilding your credit without the risks of traditional cards. Secured credit cards work much like any other credit card, but you will either have to put down a security deposit upon opening the account or you will have a credit limit that is defined by how much money you put on the card. In other words, some cards require you to “load” them, much like gift cards, and then when that money runs out, you cannot charge items to your card until you replenish the funds with cash. Keep in mind that secured cards sometimes have higher interest rates than other cards and often have many more fees associated with them. However, as long as the creditor reports your payment history to the credit bureaus, the money is well-spent because the card will help burnish your financial reputation.
Alternatives to Secured Cards
A few months after you declare bankruptcy, you might even find that some lenders are willing to offer you unsecured credit cards. Of course, these cards usually have high interest rates, low credit limits, and significant annual fees. They also might provide the temptation to overspend and reacquire the debt you just went to great lengths to discharge. On the other hand, unsecured cards don’t require a security deposit, so you may save money by choosing this avenue. Just make sure you keep your balance to a minimum, as your debt-to-credit-availability ratio has a huge impact on your credit score.
Tips on Rebuilding Credit
As you work to restore your credit, you will want to keep your total balances to less than 25%-30% of your total credit limit. In addition, if you are a homeowner, your mortgage payment history might not be reported accurately to the credit bureaus after you declare bankruptcy. To combat this, you can either refinance your mortgage loan with or request a Verification of Mortgage (VOM) from your lender. Finally, even though you might be inundated with credit card offers, open credit card accounts sparingly and judiciously. You don’t want to fall back into your old habits and having too many cards will hurt your score.