Many individuals are worried about the potential damage that can be done to their credit score after bankruptcy. Don’t get overwhelmed; in fact, you can rest assured knowing that filing for bankruptcy is an initial step in the right direction for rebuilding your score. While you should be responsible with what you are spending post-bankruptcy, don’t be afraid to start using credit again. Responsibly using credit cards is a great way to get back on track, and begin building up your credit. Know your limits, and start small.
1. WORK ON BUILDING CREDIT
For some, it is instinctive to close all bank accounts to wipe the slate clean. DON’T MAKE THIS MISTAKE! Before you start closing accounts, take a step back and evaluate what that might cost you in the long run. Keeping accounts that you’ve had for a long period of time open can actually have a positive effect on your credit score, as they lengthen your credit history. If you do decide to cut back on a few accounts, don’t close them all at once. Do it slowly and sporadically to ensure there are no upward or downward spikes in your credit history and the rebuilding process.
One of the most important factors in repairing credit is making payments on time. There are a number of different apps and services available that can trigger email, text or phone reminders, or you can set up automatic account withdrawals to ensure timely payments. Whichever method you choose, work to form a routine so that you’re always a step ahead and following through.
2. Check Your Credit Report Regularly
Similar to making payments, there are numerous websites and tools that can assist you in checking your credit score, and tracking any changes that are made to it. There are many different ways to request a free copy of your report, which makes it easier to check for errors – and dispute them if necessary. While free credit reports may not always tell you exactly what your credit score is, it contains the data that helps determine your score.
If you’re interested in getting free individual copies of your credit report, visit a site like annualcreditreport.com to get started.
3. Organize and File all Your Bankruptcy Paperwork
A crucial step after filing bankruptcy is organizing your paperwork, and filing it away for safe keeping and future reference. It is a good idea to keep a paper copy of all forms, letters and other documents together in a binder or folder that can be easily accessed for review, or to answer any creditor questions that may arise. Failure to maintain documents may cause problems when applying for things like loans or mortgages. It is better to be over-prepared than under-prepared – and document organization is a great place to start.
4. Start a Savings Plan
Keep the big picture in mind. Start small. Be realistic. All of these are key components to jumpstarting a healthy and doable savings plan. Look at where your money is coming from and going to, and assess what you can manageably set aside for savings. Consider having a portion of your paycheck automatically deposited to a savings account – if you don’t see it, you won’t spend it. A savings plan can help for large purchases, rainy days, retirement and more. “A penny saved is a penny earned”, so it’s OK to start small – anything is better than nothing. If you save now, you’ll thank yourself later.
5. Prepare and Stick to a Budget
Key to getting back on a healthy financial track is creating (and sticking to!) a budget. Setting up a spreadsheet (either electronically, or paper copy) can be an extremely helpful way to track expenses, note incomes and evaluate spending. Seeing where your money is being earned and spent can help you cut costs if necessary, and contribute to the savings plan mentioned above. A good rule of thumb is to track your spending (yes, even that morning cup of coffee) very diligently for a month, and then develop a realistic budget. Keep all your receipts – gas, groceries, clothing, housing bills, etc. – they are all part of spending, and should be noted accordingly. There are countless ways to begin budgeting; find the way that works for you and you’ll soon begin to notice the difference it makes in your finances.
As with any financial situation, know that it is always OK to ask for help. Don’t be ashamed, you aren’t the only one to have made mistakes or struggled and you’re not alone. There are a number of websites, individuals, apps, books and businesses that can help you get back on your feet and feel confident about where you’re at; take advantage of the resources available to you. It may seem rough now, but make it part of your learning experience – you’ll get through this!