Filing for bankruptcy protection can give you a fresh start and help you recover from unsustainable debt, but there is always a price to pay. When it comes to your credit, that price comes in the form of a devastated score, and getting your good name back can take a lot of time and effort.
If you have recently filed for bankruptcy, you need to take a proactive approach to rebuilding your credit and taking back your financial life. The sooner you get started, the easier it will be to recover, and these eight tips can help you right now.
Put training wheels on your spending with a secured credit card. Unlike a traditional credit card, a secured credit card limits your spending to the cash you keep in a linked bank account. A secured card is a great way to rebuild credit while allowing you to practice your newly frugal ways. Keep in mind, you want to use a major bank or creditor and you may want to open it with a minimum amount of $500 to ensure credit reporting to all major credit bureaus.
Keep your balances low but do not drop below 10% and do not exceed 33%. When you do get another credit card or take out a loan, watch your balances and pay them down diligently. Credit utilization is a major factor in determining your FICO score.
Set alerts for payment due dates. For those recovering from bankruptcy, a single missed payment will be devastating. If you want to avoid that devastation, put your payments on autopay.
Become an authorized user to gain tradeline entries. Some lenders may have a requirement with minimum number of open accounts. Signing up as an authorized user on someone else’s credit card can be a smart way to rebuild credit.
Use autopay for your recurring payments. Putting obligations like mortgage payments, credit cards and utility bills on autopay is a great way to avoid late payments and associated penalties.
Take out a small loan and pay it back on time. Taking on new debt can be scary post-bankruptcy, but a small loan will help you build credit and boost your score. Just make sure the amount is something you can handle, so you can improve your score instead of hurting it. Once you have that card in your wallet, use it wisely, check your balance often and pay the bill in full as soon as it arrives.
Monitor your FICO score to see how you are doing. Tracking your progress post-bankruptcy is important, so check your FICO score often to see how well your efforts are paying off. Many credit cards offer a free score service, making it easy to keep tabs on your progress.
The protection bankruptcy provides offers a fresh start for cash-strapped consumers and those with mountains of debt, but filing for bankruptcy should always be a last resort. And if you do take this drastic step, you will want to start your rebuilding efforts as soon as possible. The steps outlined above can help you recover financially, so you can reclaim your high credit score and your good name.
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