Filing for bankruptcy can be freeing. It gets you out of the debt you felt stuck in, but it also damages your credit for a while. How you manage yourself following the BK will determine just how long you have to deal with the ‘bad credit.’ With a few simple steps, you can rebuild your credit and get funding from lenders without having to pay the price.
Start With a Secured Credit Card
It’s no wonder lenders are going to be leery of lending you any money right off the bat. After all, you just filed for bankruptcy. The last thing a new lender wants is to put themselves at risk. In order to prove that you have picked up the pieces and made better financial decisions is to apply for a secured credit card.
A secured credit card has a credit limit that is equal to the deposit you make. For example, if you have a $500 credit limit, you will have to give the credit card company a $500 deposit. They don’t use that money; it just sits in an account. If you use your credit card and pay it in a timely manner, they never touch the money. If you default, though, they have your funds to use in its place. Once you close the account, you get your funds back.
The benefit of this type of card is that you can prove to lenders that are you are worthy of new credit. If you pay the balance off each month or at least make the minimum payments on time, you will build up your credit.
Apply for a Retail Store Credit Card
By default, most retail store credit cards are easier to qualify for than general credit cards. Consumers that filed bankruptcy can usually secure a retail credit card after just a few months of having a secured credit card and using it appropriately.
Retail store credit cards often have higher interest rates, though, so try keeping your balances to a minimum. Only charge what you know that you can afford to pay off so that you don’t find yourself with high balances that suddenly get out of control.
Become an Authorized User
If you have a family member that is willing to make you an authorized user on their credit card and they are financially responsible, take advantage of it. Before you do, though, inquire with the credit card company if they report authorized users to the credit bureaus. Some credit card companies do and some do not. If they do, this can be a great way to get another tradeline with a positive payment history, which can help your credit score.
Ask for a Cosigner
Another way family members can help you is by becoming a cosigner on a credit card or personal loan. This is a decision your family member should take very seriously, though. If you default on the loan or credit card, the cosigner becomes liable for the payments or it could affect their credit score.
Make sure whatever loan or credit card a family member cosigns for you that you can afford the payments. As long as you make the payments as agreed, it will help build up your credit score. If you don’t make the payments on time, though, you’ll damage your credit score as well as that of your family member.
Apply for Car or Mortgage Loans
The final step, which may take a year or two, is to apply for a car or mortgage loan. These types of loans have a great impact on your credit score. It’s important not to jump into this type of loan until you know that you can afford the payments. Getting behind will only put you back where you started.
Try to keep your debt ratio as low as you can, taking on the loans that you know are easy to afford and won’t force you to sacrifice in other areas of your life. The less you have to sacrifice each month, the more likely you are to make your payments on time and help your credit score increase.
Rebuilding credit after a bankruptcy isn’t impossible, but it’s not something that will happen overnight, either. Make sure that you take your time and figure out the best steps for you. No two people will have the same procedures to rebuild their credit. Take it slow and only take on what you can afford in order to have the greatest impact on your credit score.Click to See the Latest Mortgage Rates»