The decision to file bankruptcy is something that never comes easy for any of us. Many individuals have been given the immediate help and support their finances needed desperately through filing bankruptcy but how do you rebuild your credit following your bankruptcy discharge? Some filers simply assume that their credit is destroyed beyond repair and attempt to navigate their finances without credit moving forward from their bankruptcy which can be a difficult if not impossible task in today’s world. We all need credit and financing from time to time and your bankruptcy does not eliminate these financial tools completely by any means. There are several ways we can improve our credit and restore our financing capabilities after a bankruptcy so let’s begin to go over some of the logical steps in the process.
A look at the basics of credit reporting
To improve our credit we will need a basic understanding of how credit works and what creditors and lenders are looking for in your credit history. Your credit rating is determined by credit reporting agencies and the three primary agencies are Transunion, Experian and Equifax. The lesser reporting services typically mine their information from these three major sources so maintaining accurate records with the primary agencies will assure smaller services are obtaining correct information from these services. Your credit is determined by several factors such as the balance size, available credit, payment history and length of time you are to make payments. When we default on our financial obligations our creditors report this to the reporting agencies so that others can accurately access the risk involved in doing business with us and alternatively when we pay on time and keep our accounts current this is also reported so that other lenders are aware that we are a trustworthy investment.
Your credit score and what it mean to creditors and lenders
A bankruptcy which is reflected on your credit report is nowhere near as damaging as a defaulted account. If you have gone through the lengths of filing your bankruptcy appropriately and obtained your discharge you deserve to have your information reported correctly but your creditors may not see this as a priority. Be diligent and obtain copies of your credit reports from the three main reporting agencies to be certain your debts included in your bankruptcy are reflected as such. If there are debts which need to be disputed because they are not yours do not be alarmed as this is not entirely unheard of especially with very conventional names (i.e. John Smith) but for now let’s focus on our bankruptcy debts. If these debts are not showing as being discharged through your bankruptcy they are continuing to age and grow further delinquent continuously appearing as derogatory marks on your credit month after month. By disputing these debts with the credit reporting agencies and providing them with documentation of your bankruptcy discharge you can stop the debt from continuing to age as an open balance and begin the process of recovery.
The value of assuring your credit report is accurate and up to date
You may be wondering why go through this effort when the account will still appear as being closed out through your bankruptcy rather than being paid off on your credit report and the answer is simple, closed accounts do not negatively impact your actual credit score. While an in-depth look of your full credit report will certainly reveal your bankruptcy not all creditors or lenders bother with such a detailed examination. Many creditors and lenders use what is called a “soft-touch” credit determination where they are simply looking at your credit score rather than credit history. By simply getting everything reported accurately after your bankruptcy you can stop the clock on aging debts and begin to rebuild your credit with the financing that is readily available to those in your situation such as subprime credit cards and credit free auto financing. You will need to obtain new credit in order to improve your credit for more substantial financing such as home loans or small business and investment loans but this will require a well thought out budget plan with a clear goal in mind.
Looking forward to the future and more substantial financing options
The types of financing and lending options which will be immediately available to you will not offer favorable terms for the most part but for your purposes this should not impact your finances with careful management on your part. It is essential you do not utilize more than fifty percent of any line of credit you obtain. This is a red flag to creditors and lenders that you may have overextended your finances and are utilizing your credit for essential purchase. Be careful to avoid hidden terms such as membership or startup fees associated with lines of credit, while high interest rates are very commonplace there is no reason you should be paying additional fees on subprime lines of credit. Use the credit only for purchases which you already intend on paying cash for from your disposable income and immediately apply these cash funds to the credit card to avoid carrying a balance from month to month which would be subject to the inflated terms of the agreement.
After some time has passed you will have begun to establish a respectable history of financing and repayment. Bankruptcy is not perceived by all as a indicator of poor money management skills in fact many people understand the difficult decisions involved with committing to a bankruptcy and putting in the hard work needed to rebuild your credit history and will respect your work ethic for enduring such a task. By filing bankruptcy you are committing to resolving your financial agreements to the best of your abilities within the confines of the law. By putting in the effort to improve your credit following a bankruptcy discharge you will soon once again become eligible to all the standard financing options which were available to you previously but this time around you will be better prepared and in greater control of your future.