Life After Bankruptcy: Guided Steps to Rebuilding Your Credit , Finances and Emotions

You rely on your credit rating for everything from getting a small loan for an unexpected expense, to getting a mortgage to purchase your dream house. However, there could come a time when you’re so deep in debt there is no way out but to file bankruptcy (Chapter 7).

When you file for Chapter 7, your credit will be restored to a clean slate, but this is just the beginning. A Chapter 7 will remain on your credit report for ten years, but you can begin rebuilding your rating right away. We will be following several steps to restoring your credit in this article.

Bring it Back to Basics

  • The first thing you have to do is create a budget you know you can live within. A budget will allow you to stay on top of your finances, so you don’t end up right back where you started. If you are not sure on how to create a budget, don’t hesitate to get in touch with a credit counseling agency.
  • The second thing you should do is create an emergency fund. Recent studies have shown that individuals and families that have as little as $250 in an emergency fund account for unexpected expenses can protect them from getting a payday loan or running up more credit card debt.
  • Next, you should assess your new situation. You can do this by checking your credit scores with a free annual report. As soon as you know the status of your credit score, you can begin looking for options to fix it. Start building your credit with a secured loan or secured credit card. These options work by the borrower borrowing money against either money they have in a bank account already, or an initial deposit on the card. You won’t be able to access any of the money in the accounts until you have paid your debt back. There are cards out there that are specially designed to be a bankruptcy credit card.

Once you find a lender, who will extend you the credit, be very careful to pay on time. You should keep your credit balances low, below 30% is where you want to be at each month.

Steps After Basic Credit is Established

Once you are approved for your first line of secured credit and complete it, try applying for a retail or gas credit card. You should get a card to a place you won’t be tempted to go on a shopping spree, like a gas card. Double check to make sure that your card activity will be reported to all three credit agencies. This event will help move your credit score up. If it is possible, avoid closing accounts. A whole 35 percent of your credit score is made up of payment history, and another 30 percent is made up of what you owe. This balance is calculated by looking at how much you owe compared to how much credit you have available.

The more accounts you close, the less credit you have available, and the lower your credit score sinks. The final step is asking when you can upgrade to an unsecured card. If you have made all your payments on time for 12 months on your secured card, it is time to ask for an unsecured one. Many lenders and banks will agree to let you have a low-limit unsecured credit card after 12 or 24 months. Take this new low-limit unsecured card and continue to build up your credit, the same way you did with a secured card. You will slowly start to see improvements in your credit score, and you will be eligible for more opportunities in the future.

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