There is a great sense of relief that comes with filing for bankruptcy – but also a great fear that your credit score may never recover. A common misconception many people have about bankruptcy is that it will tarnish your credit with lenders forever. Fortunately, this isn’t true.
Depending on the type of bankruptcy filed, bankruptcy will stay on your credit reports for seven to 10 years. While having a bankruptcy on your record can be a significant setback, the damage can be undone. By following these proven tips, you can begin to rebuild your credit score immediately and start getting your life back on track.
Create a new budget
Bankruptcy is a chance at a clean slate, so it’s essential you take advantage of it. Overspending or missing bill payments will send your credit score in the wrong direction and make restoring your record that much harder.
Your priority should be to create a new budget you can stick to. You’ll need to assess your expenses from previous months to determine where your money is going. When designing your monthly budget, start with the most critical recurring expenses, such as your rent, utilities, student loan payments or insurance.
After important expenses, you’ll want to try to set aside some money for your savings. If possible, aim to save at least 10% of each paycheck. After that, you can use any income leftover for nonessentials such as leisure and travel.
Get new credit
While securing new credit is one of the biggest challenges with a bankruptcy on your record, it’s also one of the best ways to rebuild your credit score.
If you don’t qualify for a traditional credit card, a secured credit card or retail or gas card may be an option. Secured credit cards require that you put down a security deposit upfront, which serves as collateral in the event you can’t make your payments.
Many retail and gas credit cards have more lenient requirements for qualifying for credit. By using these cards to make small purchases that you can afford to pay off, you can gradually rebuild your credit score.
Become an authorized user
If you have a spouse, relative or friend who has excellent credit, you may consider asking them if you can become an authorized user on their credit card. Becoming an authorized user can help your credit score immensely.
The cardholder is still responsible for making monthly payments on their credit card when you are an authorized user. As long as they make their payments on time, you will get the same credit that they do.
However, if the cardholder has a late payment or misses it altogether, this will reflect negatively on both of your credit scores. For this reason, you’ll want to make sure you choose someone reliable to be an authorized user for.
It’s challenging to have a bankruptcy on your credit report, but it is possible to rebuild credit. With some careful planning and time, you can still achieve an excellent credit score.
