Filing for bankruptcy can stir up a mixture of emotions. It may feel like a personal failure, a big relief, or it could cause feelings of anxiety about your financial future. One area you may be anxious about is your credit. Your credit score will take a pretty big hit after a bankruptcy filing, so it will take some time to rebuild. The key is to stay committed to taking the steps necessary to move toward an ideal credit score. Although bankruptcy negatively impacts your credit, in some cases it can help you get back on the road to financial health sooner.
“Ironically, a bankruptcy may help you start building good credit sooner than if you don’t file for bankruptcy and continue to struggle with more debt than you can pay, especially if you wind up filing bankruptcy later anyway. Eliminating or reducing debts through bankruptcy will help you (when the bankruptcy is over) to meet the two most important goals for a good credit score: making your payments on time (35% of your score) and not using most of your available credit (30% of your FICO score), said Robin Leonard and Margaret Reiter in the book Credit Repair.
Here are four tips for attaining healthy credit after a bankruptcy.
1. Build savings
Not having enough savings is likely a big part of what got you to the point where you needed to file for bankruptcy. It will be important to begin putting away at least six months of savings so you can have enough cash on hand for emergencies. This way you won’t have to rely on credit to get through a tough financial situation. You can start by having a set amount of money automatically withdrawn from your checking account and placed into savings each pay period.
2. Add positive information to your credit report
Have you taken a good look at your credit report lately? There may be positive information missing that could help boost your score. This is one of the simplest ways to improve your credit. You can write a letter to the credit reporting agencies, requesting that positive information, such as an account in good standing, is added. Sometimes a creditor will submit your account details to one major credit reporting agency, but forget to send this information to the other two. If this is the case, you will have to send a copy of the credit report that has the complete information to the other two major agencies. Include a letter asking for the information to be included. You can also contact your creditor directly and ask for unreported accounts to be reported to the agencies.
3. Consider a secured credit card