How to Repair Your Credit
There are simple steps you can take to begin rebuilding your credit immediately after you file for bankruptcy.
First, it helps to understand how your credit score is calculated. In general, credit scores depend on a number of factors, not just whether you pay your bills on time and don’t have any delinquent accounts. Your credit score will depend on your debt-to-credit ratio, how long you’ve had your credit cards, your payment history, whether you’ve defaulted on any loans, and how often creditors or banks have made inquiries concerning your credit. Second, even if you don’t receive solicitations in the mail for credit cards, you should be able to qualify for a secured credit card or line of credit with your bank.
Both can help you begin your credit repair. Most importantly, however, just because you’ve declared bankruptcy doesn’t mean you’ll never qualify for a loan or credit card again.
How Long Will Bankruptcy Stay On My Credit Report?
Bankruptcy can remain on your credit report for up to a decade, depending on how you file. A Chapter 7 bankruptcy will remain on your credit report for the full 10 years. A Chapter 13 bankruptcy usually remains on your report for seven years, but could be removed sooner if you repay a portion of the debt.
One thing to remember, however, is that this is generally the same amount of time any negative credit items will appear on your credit report after the point that they are finally paid off. So by filing for bankruptcy and getting these debts handled, you are speeding up that process by “stopping the bleeding”, so to speak, so the healing can begin.
How to Fix Your Credit After Filing Bankruptcy
Once you’ve filed for bankruptcy you’ll ultimately want to work toward reestablishing your credit. You may find it hard to get credit at first but don’t be discouraged. You may have to pay a higher interest rate, but if you use your credit wisely and pay your balance each month this should not impact you greatly.
The Steps to Fix My Credit?
Reestablishing your credit will take some work. Here are a few of the steps you’ll need to take.
- First, verify that your credit report has been wiped clean after the bankruptcy. You may need to provide documentation to the three major credit reporting bureaus to show the debts that have been discharged.
- Next, establish a good payment record and make sure it shows up on your credit report. For example, make car and house payments on time. You may also need to try and get a credit card (secured or unsecured).
You may think that getting a credit card goes against one of the main goals of filing bankruptcy in the first place, but it could be a crucial step toward reestablishing your credit. Make sure you pay the balance in full each month and only charge small amounts.
When working to reestablish your credit, it’s very important that you don’t act too quickly – even though you may be able to get credit sooner than you think. One of the reasons is that if you file Chapter 7 bankruptcy, your debt-to-income ratio is dramatically reduced. This may make you a better credit risk in the eyes of some lenders. If you file Chapter 13, you’ll still see a debt-to-income ratio reduction but it won’t happen as fast.
Installment Credit and Revolving Credit — Why Both are Important
In order to start rebuilding your credit, it’s important to have two types of credit – installment credit and revolving credit:
- Installment credit: Refers to things like mortgage payments, student loans, or car loans – credit that requires you to make regular monthly installment payments. If you have forms of installment credit, you can improve your credit score by establishing a history of regular, timely monthly payments, proving your ability to manage debt.
- Revolving credit: Refers to the use of credit lines that can change over time. Forms of revolving credit include things like credit cards, credit lines with a bank, or home equity loans. Again, if you make timely, regular monthly payments on revolving lines of credit, your credit score will improve over time.
One of the largest factors in rebuilding your credit is not to have late payments on anything. Also avoid carrying a large balance on your credit cards. This responsible use of your credit will help you rebuild very quickly. If you don’t qualify for an unsecured credit card after bankruptcy, you should be able to get a secured credit card. Secured credit cards require you to provide your bank with collateral that establishes the amount you can charge. However, not all secured credit cards report to Equifax, Experian, and TransUnion. If you decide to get a secured credit card, make sure the bank offering it reports to the major credit reporting companies – otherwise, you won’t be able to rebuild your credit score as effectively.
How to Manage Credit Cards After Bankruptcy
Life after bankruptcy will require some time to rebuild. However, by being smart with credit cards, you can speed that recovery and get back on solid footing. Here’s some information that can help you manage those cards intelligently.
Should I Cancel the Credit Cards I Hardly Ever Use?
An important factor in a person’s credit score is their debt-to-credit ratio. If you carry a large amount of debt on your credit cards, you will likely have a high debt-to-credit ratio. If you have cards you simply don’t use or use only very rarely, canceling them will only increase your debt-to-credit ratio, detrimentally affecting your credit score.
To see why, suppose you have four credit cards, each with a limit of $5,000. Suppose you have maxed out two. Your debt-to-credit ratio would be $10,000 to $20,000. In this case, you’ve used 50 percent of the credit available to you. Now, suppose you cancelled one of the credit cards you don’t use. Your debt-to-credit ratio would now be $10,000 to $15,000. Here, you’ve used two-thirds of the credit available to you, resulting in a higher debt-to-credit ratio that his harmful to your credit score.
Don’t ignore these – keep a close eye on them. Make any corrections that need to be made once your bankruptcy has been discharged. Many people simply abandon their credit reports after bankruptcy, which can be an extremely serious mistake. Instead of these reports reflecting inaccurate information, they should all reflect a $0 balance. Don’t simply assume that the discharge will make this happen. Get your reports from the three reporting bureaus (TransUnion, Experian and Equifax) and make any corrections that are needed.
Prove Your Credit-Worthiness
You eventually need to re-establish your credit so that you can prove to prospective lenders that you are responsible financially. Pay your bills on time, every time, and make timely payments on your court or bankruptcy fees as well. A big part of being able to do that, of course, is budgeting and saving wisely. You need to be keenly aware of how much money is going out and how much is coming in each month. You’ll not only be back on the road to getting good credit, you’ll also have peace of mind. Try to build an emergency fund, even if that means only putting in $10-$20 at a time.
When you do get a credit card, it’s obviously important that you only use it when absolutely necessary. Pay off the balance in full each month. You’ll probably have a difficult time getting a card, but do so as soon as you can. There’s a good possibility that you’ll need to try and get a secured card that comes with higher fees and interest rates. Once you’ve made six on-time payments, then try to apply for an unsecured card.
It will take time for you to deal with the ramifications of a bankruptcy, but it’s not impossible. Pay your bills on time and make sure you spend within your means. If you need help, get in touch with the Leinart Law Firm. Call us at 817-426-3328 or contact us online.
How will I Reestablish Credit?
The first step is to make sure that your credit report is as clean as it is supposed to be. This may take writing the three major credit card bureaus to dispute or provide documentation (such as all of the debts that were discharged in the bankruptcy) to include on your credit report. The second step is to establish a good payment record and have that properly documented on your credit report. A good payment record can be accomplished by making on time payments on your house and cars and by obtaining one or more secured or unsecured credit cards. Even though a major part of bankruptcy is to wipe out credit card debt and keep it that way, it can help reestablish credit to charge small amounts and pay the balance in full each month.
What about the Credit Bureaus and Your Credit Report?
It’s important to check your credit report at least once a year. By law, you are entitled to a free copy of your credit report on a yearly basis. Not only does it help protect you against identity theft it also allows you to review what has been reported to see if there are any errors or inaccuracies. Once you have completed a bankruptcy, checking your credit report becomes even more important. While credit reporting companies like Equifax, Experian, and TransUnion are supposed to remove delinquent accounts and unsecured debt from your credit report after your bankruptcy, mistakes are sometimes made.
One service that Leinart Law Firm provides to its clients is to periodically check this for you (even while your bankruptcy is active). If we find errors or violations we can not only get these fixed but can sometimes even obtain a monetary settlement from the creditor who violated the credit reporting legal guidelines.
Contact Dallas, Texas Bankruptcy Attorneys at Leinart Law Firm
If you’re struggling with mounting debt, medical bills, or mortgage payments, filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy may be the most effective way to get back on your financial feet. While it may take some time to bring your credit score back to where it once was, bankruptcy can stop the bleeding and get you on the path to credit recovery. Call Leinart Law Firm today at 1-800-518-3328 or email us for more information and learn how we can help you.