Applying for Credit After Bankruptcy

Posted by Wesley Scott on July 14, 2015 at 8:00 AM
Wesley Scott

credit_after_bankruptcyFace it, in today's world, credit is almost always necessary. From buying a house, financing a new vehicle, or paying for higher education. The key is to manage credit wisely after bankruptcy. Some people believe that if they file bankruptcy they will never be able to qualify for credit again, but this is not true.

It is true that filing bankruptcy will cause a temporary decrease in your credit score and you may pay higher interest rates for credit immediately after completing a bankruptcy case. However, this will not last forever. You will be able to qualify for credit after bankruptcy and your credit score will improve.

How Does Bankruptcy Affect My Credit Score?

Filing bankruptcy will cause your credit score to drop temporarily, but only temporarily. In most cases, a debtor’s credit score was damaged prior to the bankruptcy filing due to late payments, exceeding credit limits, collections, and other negative notations. The good news is that filing a bankruptcy can help you improve your credit score quicker than if you would try to settle the debts or ignore the problem.

When you file a bankruptcy case, creditors are prohibited from attempting to collect a discharged debt. The creditor must reflect that the debt has a zero balance, stop reporting late payments on your credit report, and stop reporting the account is in collections. Because creditors cannot continue to make negative notations on your credit report, your credit rating will begin to improve. Most debtors see an improvement in their credit score within a year after filing bankruptcy. As you continue to make secured debt payments (i.e. mortgage, car loan, etc.) on time, your credit score will continue to improve.

What Are Some Types Of Credit I Should Use To Build Up My Credit Score Even More?

You will probably begin to receive credit offers not long after your bankruptcy case is closed; however, these offers typically have low credit limits and extremely high interest rates. One type of credit card you may want to try that can help you improve your credit score after bankruptcy is a secured credit card. A secured credit card works just like a regular credit card with one exception — you must give the company a deposit to “secure” the charges on the credit card in case you do not make the payments. By using your secured credit card and making the payments on time, you will be able to improve your credit score. Just make sure that the company reports your information to the credit reporting agencies before you apply for the credit card.

As your credit score continues to improve, consider adding a personal loan, a revolving credit account, and a secured loan (i.e. car loan, furniture loan, etc.) as your income and budget permit. If you cannot afford to make the payments on a line of credit or other debt, do not apply for the credit. You must be able to make all payments on time in order to improve your credit score after bankruptcy.

When Should I Feel Comfortable Applying For Credit?

This is a personal choice based on your financial situation, income, and other expenses. As discussed above, you must be able to make all debt payments on time or you will lower your credit score even further. In the beginning, you will pay a higher interest rate for credit; however, this will improve the longer you wait after filing bankruptcy to apply for credit. Secured credit cards are a good way to begin using credit after bankruptcy until your credit score begins to improve and you can qualify for a lower interest rate.

The key to knowing when you can apply for credit after bankruptcy is to examine your personal budget. In order to manage credit wisely, you must have a personal budget to determine your disposable income each month. You must know for sure if you have the income to make the monthly payments on credit after bankruptcy. Use your personal budget to ensure that you will not have more money going out than you do coming in each month — that is the reason you had to file bankruptcy and you do not want to repeat that situation.

Credit Is Not A Bad Thing

Remember, credit is not always a bad thing but you must avoid buying things you do not need and you cannot afford. If you use credit wisely, credit can be a useful tool. Many of the financial tools and lessons you learned in your credit counseling course and money management course that you are required to complete when filing a bankruptcy case can help you manage credit wisely.

If you are struggling with bills you cannot pay, sign up for a free bankruptcy consultation with Kain & Scott, P.A. to determine if filing bankruptcy is the best way to resolve your debt problems. We will discuss all available consumer debt solutions to help you reach a decision that is in your best interest. For more information about what to expect during your bankruptcy consultation, download a copy of our free Bankruptcy Consultation eBook.

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Topics: Credit Repair

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