Are you struggling with debt? If so, you are not alone. The average American household is $135,924 in debt.[i] With credit cards, student loans, and mortgage payments, getting out from under that mountain of debt may seem insurmountable.
When debt becomes overwhelming, many people turn to bankruptcy as a means of resolving their past monetary issues and starting the process of reconstructing their financial futures. Those who file for bankruptcy, however, generally face a new financial obstacle - rebuilding their credit so that they can qualify for future financing.
If you have filed for bankruptcy, following these steps can help you rebuild your credit and lay the foundation for a better financial future.
Know Your Credit Score
The first step in the credit rebuilding process is to know your credit score. There are plenty of services that offer free credit reports once a year.
If you have your eye on a large loan, such as a home mortgage, it may be worthwhile to pay for credit services that provide you with real-time updates.
A copy of your credit report can help you spot errors such as debts that you have already paid down. Work with the creditor and the credit bureaus to remove any such errors from your credit report. While the removal of such errors won’t immediately transform your credit score, they will certainly help move the needle in the right direction.
Continue to monitor your credit score regularly while you work to rebuild your credit after a bankruptcy.
Many people who are recovering from a bankruptcy are reluctant to take on a large amount of debt any time soon thereafter. However, there will come a time when you may be in need of a new car loan, personal loan, or mortgage.
To secure a future loan, you will want to get started on rebuilding your credit immediately. It can take a significant amount of time to recover from your bankruptcy. In fact, it may remain on your credit report for up to ten years.
Opening a credit card account can be essential to rebuilding your financial health. Without a credit history, a secured credit card may be your best option. A secured credit card requires a deposit, which will then be your credit limit. Your secured deposit acts as collateral for all of your card usage.
The good news is that many secured credit cards operate similarly to non-secured credit cards. Many secured cards will report to a major credit reporting agency and help to establish your credit score if you make timely payments and maintain low balances.[ii]
Take Your Time
Don’t rush into applying for numerous loans and credit cards all at once. One of the key areas of your credit score is your “new credit.” It can account for 10 percent of your credit score and can drop significantly based on the number of new accounts you have applied for.[iii]
Once you have established a good record with a secured card, you can try to qualify for a traditional credit card. Help your creditors overlook past payment troubles by making your payments in full and on time.[iii]
Understanding the Costs of Bankruptcy
As you work to rebuild your credit score, you may need to be prepared to pay a little more. Some lenders may charge you a higher interest rate or require a larger down payment for you to secure a loan.
Monitor your credit score so you know what to expect and shop around to find a financing rate that is suited to your financial needs and goals. For many, it pays to hold off on a big purchase that requires a loan as it gives them time to improve their credit score.
Make the Most of Your Fresh Financial Start
Bankruptcy is not the end of your financial life. In fact, it can represent a fresh financial start. Make the most of your bankruptcy filing. Take the time to review your finances and understand the circumstances that caused you to become overwhelmed by debt in the first place.
Being patient and aware of your spending are key to re-establishing yourself and rebuilding your credit after a bankruptcy. Stay focused on your credit rebuilding efforts and the negative data points on your credit report will start to seem like a distant memory.
If you would like information about how the online banking tools available to Bank of Internet USA checking and savings account holders could help you take charge of your finances, please contact us by phone at 1-877-541-2634 or by email at firstname.lastname@example.org today.