The credit score is such a ubiquitous part of American life that it’s little wonder that bankruptcy’s impact on your FICO score would be one of your primary concerns prior to filing. You’re not alone—most of our clients ask about their credit score at some point during the process.
Fortunately, bankruptcy will be a net positive for your credit score and rebuilding your credit won’t be that hard.
The Initial Impact on Your Credit Score
Did you know that credit scores generally go up after bankruptcy? That’s because bankruptcy completely wipes out all the dozens of past due collection items that are currently sitting on your credit report.
Of course, this does not mean you will necessarily have a good credit score. But we’ve seen scores go from “poor” to “fair” directly after the discharge.
Applying for Credit
You’ll be surprised to realize you’re getting dozens of credit card and car loan offers directly after your discharge but be careful.
You’re getting these offers because these companies know you won’t be able to declare bankruptcy for another seven to ten years. They’re counting on getting their money. They’re also counting on you being grateful to receive any credit at all, so the terms aren’t generally very good.
Unless you absolutely need a new car loan to get to work, your best bet is probably to get a small, secured card. It will be vital that you make the payments on time if you want to increase your credit score.
Credit Builder Services
Credit builder services allow you to build credit without actually opening a credit account. If compulsive spending led you into the initial debt it could be wise to stick to these services. If you simply had a financial disaster they can nevertheless enhance your efforts to build excellent credit.
- Extra – Extra helps you build your credit with a debit card. It links to your bank and gives you a spending limit based on your bank balance. You buy things with the card, and then the card takes the money back out of your bank account. At the end of the month they total up all your transactions and report them to credit bureaus as on-time payments.
- Chime – Essentially a secured card. You move money from your checking account into the card, use it like a secured credit card. The money you move in the card will automatically be used to pay off your balance at the end of the month, and they will report the payment to the credit bureaus.
- Self – Self allows you to build credit while saving money. You essentially take out a loan that goes into a CD. You then choose a small payment and pay off the loan. When you finish the program, the money in the CD is yours, minus fees and interest.
- Kikoff – Kikoff starts you with a $750 credit line and asks you to make monthly payments of $5 a month. It is not a credit card; you can only purchase anything but one of their credit-building plans.
- Experian Boost – This is a free service that lets you report payments you make every month anyway, such as your cell phone payment and your Netflix bill.
There are dozens of other services. Many local banks and credit unions have gotten into the credit building game.
Applying for a Mortgage
You will generally be able to apply for a mortgage about two years after your bankruptcy discharge. If you’ve managed your credit well, have stable employment, and have a down payment, then there are plenty of places that will work with you.
Getting an apartment is generally possible even directly after your discharge, though you may have to pay a larger deposit in some cases.
Get Your Financial Fresh Start Today
Don’t be afraid of bankruptcy. It could be the best financial decision you ever made.
Want to find out how it might help you? Reach out to our office to schedule a free consultation today.
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