Credit after Bankruptcy
by Deborah Dera
Bankruptcy. It's a scary word. The reality of the situation, however, is that bankruptcy doesn't have the same social stigma it once had. The fact that a person has
filed for bankruptcy doesn't make him a bad person – more likely the victim
of unfortunate circumstances. Still, recovering from bankruptcy can be a
difficult task, especially if you don't know where to start.
Let's look at things in a positive perspective. While a bankruptcy filing will show on your credit report for several years, having it on your report will not make
it impossible for you to obtain new loans or other forms of credit later on.
As time goes on, more and more companies will become willing to offer you
credit – especially if you do a little bit of work to increase your credit score.
Review Your Credit
The very first thing
you need to do is obtain a copy of your credit report. Review each and every
item, line by line. Take the time to research and challenge anything that is
incorrect. You may, for example, find evidence of an account you never
opened. I once found a credit card for a gas company on my report but it
didn't belong to me – it belonged to my dad and had been opened at a time
when I still lived at home.
You'll also want to
make sure that any of the creditors included in your bankruptcy have noted
your account as closed. Your creditors may have sent your information to
collections, in which case those agencies may show up on your report as a
separate listing. Make sure all of the accounts associated with your
bankruptcy, no matter how far removed from the original debt, are closed.
Focus on Your
Take a look at your
utility bills and determine which utility companies report to the credit
bureaus – some do. Focus on paying these bills in a timely manner each and
every month. Paying your bills on time will slowly but surely increase your
depleted credit score and will show your creditors (current and future) you
are financially responsible.
Applying for a secured
credit card is another great way to show you are serious about repairing
your credit score. Secured credit card companies will require you to place a
deposit in the amount of your credit limit. If you don't pay the bill,
you'll lose your deposit. If you do pay the bills on time, you'll likely get
most or all of your deposit back after a specified period of time. It may
seem expensive at first, but obtaining a secured card is one of the least
risky methods for obtaining new credit and these companies will report to
the credit bureaus just like any other.
Store Credit Cards
Because of the limited
way in which they can be used, store credit cards are often easier to obtain
than credit cards from major banks. Keep your aforementioned secured card
for at least a year. Then apply for a store credit card. Your ability (or
inability) to get a store credit card will give you an idea as to whether or
not you are ready to apply for an unsecured credit card from a major bank.
Purchase a CD
If you have cash on
hand, you may want to consider opening a CD at your local bank. The first
thing you need to do iis find a bank that will a) allow you to use a CD as
collateral on a loan and b) report your loan payments to all three major
credit bureaus. You'll open a CD, wait at least a month or two, and then use
the CD as collateral to open a loan account with the same bank.
You won't use the loan
money to make any sort of purchase. You'll simply put it in an account and
use it to pay back the loan over a brief period of time. You will end up
paying interest on the loan, but it's a small price to pay to increase your
credit score after a bankruptcy.
Yes, you had to do
pre- and post- bankruptcy credit counseling before you could get your
discharge but consider that the first step. You should seriously consider
talking to a real credit counselor about some of the other things you can do
to improve not only your credit score but your overall financial situation.
Your counselor may be able to suggest some simple changes to your lifestyle
you might not have otherwise thought of.
Work at your credit
score slowly but deliberately. Before you know it, your bankruptcy will be a
thing of the past and your financial future will be brighter than ever.
Deborah Dera is a full-time professional writer focusing on topics such as personal finance,
search engine optimization, and blogging. She's the founder of Write
on the Edge and offers unique content creation solutions to business owners
who want to enhance their brands online.