Maintaining a good credit rating is important. Without it, you will have to pay cash for everything you buy, and sometimes that’s not convenient. Unfortunately, if you made some mistakes and had to declare bankruptcy your credit rating will be ruined. Don’t despair. It can be repaired–but it may take awhile. Following are a few tips on how to repair your credit after bankruptcy.
New Credit History
The idea behind a bankruptcy is not to escape the debt you built up, but to eliminate the fact that you were unable to meet your obligations. To do that you will have to establish a new credit history. A bankruptcy needn’t include all your prior debt; some people choose to keep their auto loan, and in most cases student loans can’t be included in a bankruptcy. If at all possible, you should continue to pay these loans in full and on time. Doing so will help repair your credit score. If you apply for a new loan, and are fortunate enough to be approved, make every effort to make your payments on time. Keep in mind that establishing a new credit history will more than likely be a lengthy process, but if you stick to it your credit rating will continue to rise.
Secured Credit Card
Because you’ve declared bankruptcy, you most likely won’t be able to qualify for a regular credit card for quite a while. However, it is possible to reestablish credit through the use of a secured credit card. Save a little money so you can have it available when you approach a bank about getting a secured credit card. The money will have to stay in the account to ensure you won’t be overdrawn. It works similar to a debit card in that your expenditures will be limited to the amount of money in the account, but it will be viewed as a credit card by the credit reporting agencies.
Grow Your Credit Rating
A bankruptcy will follow you for a long time, but if you are persistent, and don’t make the same mistakes that caused the bankruptcy in the first place, you should be able to repair your credit. By establishing a new credit history, your bankruptcy will eventually be forgotten. Grow your new credit rating slowly by continuing to pay whatever past debt you can, and by opening new accounts whenever possible. The same rules apply to rebuilding your credit rating as were relevant when you first established credit; pay your bills on time, but don’t pay off the entire amount you owe each month. Instead you should carry over a little bit of debt because your credit rating is not based on whether or not you pay off your debt, but is based on the amount of available credit you make use of. For instance, if you have $5,000 credit available to you, but you only use $50, your credit rating will be higher than if you use $4,000 worth of credit–but only if you make your payments on time.
Check with a bank or credit union about the possibility of securing a bad-credit, or subprime, loan. Although a loan of this type will carry a very high interest rate, it will allow you the opportunity to repair your credit–providing you pay if off according to the terms of the loan.
Store Credit Cards
Due to the fact that it is a bit easier to get a store credit card than a major credit card, you may want to apply for a card from a store such as Staples or Sears. Using a store credit card on a regular basis will help repair your credit, as long as you make your payments on time. However, you may have to ask the store to report your credit to the three reporting agencies–Experian, TransUnion, and Equifax–because unlike the major credit card companies, stores may not report your good credit history automatically.
It is important that you remain patient while you’re trying to repair your credit. It probably took you a long time to ruin it in the first place, so it shouldn’t surprise you that it may take even longer to repair your credit. The one thing you need to keep in mind–and it can’t be stressed enough–is to not make the same mistakes that originally caused you to file for bankruptcy.
Guest post from Riley Finnigan. Riley writes for Creditscore.net.