Bankruptcy can make you feel like you are totally off track with your finances. Going through the bankruptcy process is not the end of financial health and security. It may lead to considerable distress and a feeling of failure. However, there is an opportunity to get back on an excellent financial footing by being intentional about building up your credit.
It is important to understand that it takes time to rebuild credit. Although there are solutions that lead to short-term success, a long-term plan is the better option. So, rather than taking just one step, consider how you can combine various options to help you get closer to better credit faster.
Here are five steps that you can take to get back on track.
Step 1: Monitor your Credit Reports
Errors in your credit report may affect your overall credit standing. Therefore, it is essential to periodically check these reports to determine if any errors may lower your credit score. To begin with, ensure that the discharged accounts as a result of your bankruptcy are correctly reported. This means that their total balance should appear as zero.
Also, take note of the date of the bankruptcy filing. This shall remain on your account for up to ten years, and having an accurate date is essential for your future. When you notice any errors, immediately file a dispute with the relevant organization to correct them.
Step 2: Make Use of a Secured Credit Card
This is an excellent short-term solution to begin building your credit. With a secured credit card, you pay a deposit which then sets your credit limit. Like other credit cards, there are fees that you will have to pay each year and interest when you use the card. However, maintaining this card and making sure that all the payments are made on time make it easier for you to access an unsecured credit card.
One essential point to note when applying for this card is ensuring you meet the qualifying criteria. Whenever an inquiry is made on your credit, your credit score drops down slightly. If you get the card, this should not be a problem. However, if you do not qualify for the card after applying, you will be doing further damage to your credit score.
Step 3: Take Control of your Remaining Debt
Filing for bankruptcy may have helped take out most of your debt. Nonetheless, you may have a few small obligations that still need to be cleared. Furthermore, the entire bankruptcy process could lead to you incurring additional debt.
Make sure that you have a plan in place to cater to all the minimum payments. The goal should be that there should never be a delay in payments, and you work within a budget. For example, old credit cards should no longer be used and paid off in full instead. Also, take time to build up your savings with any excess funds, no matter how small, so you do not slip back into debt.
Remember that you can ask the lender to report it whenever you make a payment on time. This means that consumer credit bureaus will have up-to-date information that can elevate your credit score.
Step 4: Consider a Loan Option
There are some bad credit loans that you can access to help you rebuild your credit. One good option is a credit builder loan. To get this loan, you are encouraged to make some savings in the financial institution. Then, this loan is extended to you against the money you have put into savings. You will be given a period of time to pay it back. In effect, you borrow your own money and use it to build up your credit.
Each month, you will have to make a fixed payment. These loans have the advantage of being low-interest loans. The benefit is that your account activity information is shared with credit reporting bureaus. This reveals a history that you can make consistent payments. The ultimate result of this is the growth of your credit score.
Step 5: Change your Past Behaviour
It would be best if you avoided all the behaviour that led you to go through bankruptcy in the first place. Without taking intentional action, you will discover that you are making the same mistakes. Some of the errors that you can avoid include: –
- Opting for high-interest credit cards
- Taking loans that you do not need
- Living with an unrealistic budget
- Being lax with your cash-flow management
- Choosing credit options that do not help your credit score
By changing your behaviour, you also reduce the possibility of being penalized. With a bankruptcy on your record, the penalties tend to be steeper and the consequences of failing to make payments severe.
Going through bankruptcy opens up significant opportunities with your financial management. With bad credit loans, you can learn how to be responsible with your financial budgeting and planning. This may be just what you need for a fresh financial start.
To ensure that you can build your credit well after going through bankruptcy, set up the right support system. This requires excellent credit management, personal finance planning, and an optimistic outlook for positive results.