If you’re worried about your credit after bankruptcy, we’ve got great news. While it won’t be true for everyone, your credit score is likely to go up after bankruptcy, not down.
Yet there are steps you can take to make your credit score even higher. There are some people who have even managed to obtain a credit score of 700+ after bankruptcy. You’ll just have to be intentional about some of the financial moves you start making after your discharge.
Applying for Credit
You won’t have much trouble applying for credit after your discharge. You’re likely to get bombarded with offers.
If anything, you’ll have to guard against the temptation to take some of those offers. Most will have high APRs and fees.
Many companies will line up to take advantage of two facts: you know your credit has problems, so might be willing to take credit on any terms, and it will be years before you can take advantage of the bankruptcy process again.
In short, if you accept their offer, you’ll have to pay them, and you’ll have to do it on the unfavorable terms they’re offering.
We recommend getting a small, secured card and using it to make very small purchases that are paid off at the end of each month.
Once you apply for credit it’s imperative you make the payments every month. On-time payments account for 35% of your credit score.
Managing Credit Utilization
We don’t recommend using credit for daily necessities. Instead, think about small purchases: use credit to buy a single book, or to rent a single movie.
Credit utilization accounts for another 30% of your score. If you have a lot of available credit, your score goes up. If you’re running your card right up to the limit every month then your score goes down.
Managing Credit Mix
Credit mix makes up 10% of your score, but you don’t have to go crazy. If you’re just trying to rebuild your credit, one credit card, one student loan payment, and one car payment are generally enough to re-establish a positive history.
Most people will keep their student loans, and most will need a car payment, so this isn’t impossible for most.
Buying a Home
If you manage your credit with this level of precision there’s a good chance you’ll be able to apply for a home mortgage within two years of your discharge, even though the bankruptcy will still be on your credit report.
This is because you will have established history and stability. If you’ve also established stability at your job and have regular income coming in, there are plenty of lenders who will work with you.
Get Help Today
If you’re deeply in debt and your credit score has already plummeted then it is unlikely you will ever repair it through repayment alone. Most people would have to see a significant increase in their salary or receive a significant windfall to pay off all of their debts.
Bankruptcy can give you the clean slate you need to repair your financial future. Reach out to our office to schedule a free case review today.
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