Many people think that the act of filing bankruptcy will affirmatively prevent them from re-establishing their credit; that their life, in essence, is over, but this could be further from the truth, and, in fact, the opposite is true. A bankruptcy will not prevent you from obtaining new credit following a bankruptcy discharge. In the context of a Chapter 7, you can expect to receive your bankruptcy discharge within four months from the date your case was filed and can start rebuilding your credit immediately after your Discharge is entered.
Practical Steps to Improve Your Credit Score After Bankruptcy
So what proactive steps can you take to rehabilitate your credit after receiving a discharge in bankruptcy? It is important to stress that a bankruptcy will remain on your credit report for ten years, but again, you do not have to wait this long to repair and re-establish your credit. The first step you need to take is to pull your credit report, ideally, every 6 months, but initially, you want to make sure that your bankruptcy has been accurately reported on your credit report and all debts included in your bankruptcy have been marked as discharged and show zero balances. You need to have a thorough understanding of where your credit stands before you can start rebuilding it. While inquiries by prospective lenders can affect your FICO score, pulling your own credit report will have not have any negative impact on your score, so check your credit report and monitor it to ensure that it is accurate which leads to the next step you can take to achieve a better FICO score and overall improve your credit, check your credit report for errors. Merely assuming that all of the information contained in your credit report is accurate is one of the biggest mistakes you can make and that one mistake could cause you to be turned down for credit or offered credit, but at less than favorable terms. If you do find inaccuracies in your credit report, you can easily dispute these inaccuracies by filling out a dispute form with the credit reporting agency directly. The credit reporting agency has thirty days under the Fair Credit Reporting Act (“FCRA”) from the date the dispute is initiated to investigate the dispute and resolve it.
Another step in the process is to apply for credit. All too often bankruptcy attorneys will hear a client say that they will never have another credit card. Having no credit is as bad as having poor credit and truth be told, the longer you refrain from attempting to accept lines of credit, the more it will prolong your ability to improve your credit and your FICO score. A crucial component to rebuilding your credit will also be building positive credit. What does this mean? Following a bankruptcy discharge, it may be necessary to first obtain a secured credit card or you may be able to secure a low limit unsecured credit card. Regardless of the credit line extended to you, only take on debt that you are financially able to pay off responsibly. Make timely payments as a positive repayment history is crucial and again, do not try to amass significant debt. It is critical to your success that you not exceed 30% of the total credit limit extended to you. Further, you do not want to apply for several credit cards all at the same time as each inquiry made by a prospective creditor will also affect your FICO score. An inquiry will also remain on your credit report for two years and compromises 10% of your total credit score.
Take Control of Your Credit Score with These Simple Steps
Just by utilizing the few proactive steps referenced herein, you will have adopted a plan to take control of your credit score and your overall financial well-being. You will begin to feel confident and secure in knowing that that you will not be repeating past mistakes. Your financial recovery will take time following a bankruptcy discharge, but with smart and responsible planning and developing good credit habits moving forward, your efforts will begin to pay off and the positive impact will show on your credit report.