Rebuild Your Credit Score

If you are already considering bankruptcy chances are you already have missed payments on one or more of your loans and credit accounts.  Being late or missing payments also has significant negative effect on credit scores. The fact is that you may be able to rebuild your credit score quicker through bankruptcy than you could by attempting to repay one creditor at a time.

Factors That Affect Your Credit Score

  • Previous credit performance (payment history) – 35%
  • Current level of indebtedness (amounts owed) – 30%
  • Time credit has been un use (length of credit) – 15%
  • Pursuit of New Credit (applications for new credit) – 10%
  • Types of credit (credit mix such as credit cards vs. mortgages or other secured debt) – 10%

 

Obtaining Credit & Increasing Your Credit Score after Bankruptcy

The good news is that you can take steps after filing for bankruptcy to obtain and rebuild your credit.  You can do so by:

  • Opening a new checking or savings account: If you do not have either type of account, you can start by opening up a savings account at local bank or credit union.  Once you demonstrate to your bank or credit union that you have been responsible in the handling of your savings account, you can increase your chances of opening up a checking account with your banking institution.
  • Obtaining a secured credit card: After filing for bankruptcy, start putting a little money away with the goal of obtaining a secured credit card. A secured credit card works like a debit card.  You pay the bank or credit union the money beforehand.  The good news is that use of secured credit cards gets reported to the three major credit bureaus.  By using a secured card responsibly, you are likely to increase your credit score post-bankruptcy.
  • Paying off your balances on time every month: If you have an auto loan or other secured debt, ensure that you are paying your monthly payments on-time.  If you have unsecured debt (such as credit cards) pay off your balances every month.
  • Monitor your Credit Reports: Get copies of your credit report from all three major credit bureaus and ensure all your information contained there is correct.  If you find incorrect information, you can send a letter to the bureaus disputing any errors and asking they be removed. However, please note that if the information reported is correct, the bureaus will not remove it.
  • Save Money:  Whenever you can, build a small savings balance for use in case of emergencies. That way, in the event of a medical, mechanical or some other emergency you do not need to rely on credit to finance such expenses.
  • After passage of time, ask to upgrade to an unsecured credit card: After showing responsible use of your secured card and checking/savings accounts, ask your financial institution if they would consider granting you an unsecured card or line of credit (such as overdraft protection).  Most banks will agree to do so. Initially, you credit limit will be low, but with responsible use of your card you are likely to be able to obtain increased credit limits over time.

 

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