Personal bankruptcy is a very real option for those looking to obtain debt relief. But if you’re like most people, then you probably already have some preconceived notions about bankruptcy. In most instances, those perceptions are negative. Some people think that bankruptcy will leave them with no financial resources once the process is complete, thereby leaving them worse off than they are now, while others are concerned about how bankruptcy will affect their credit. This week let’s look at the latter concern. Just how does bankruptcy affect your credit score and how can you work to rebuild it after filing for bankruptcy? Read on to learn more.
How bankruptcy affects your credit score
Depending on the type of bankruptcy you seek, your bankruptcy will remain on your credit report for up to 10 years. This means that for a significant period of time, lenders will be able to see your bankruptcy and use it in making lending decisions. Therefore, your credit score will probably be lower than you want, and you may not be able to secure credit lines as easily as you hope.
What you can do to rebuild your credit
Fortunately, there are steps that you can take to rebuild your credit score after pursuing personal bankruptcy. Let’s take a look at some of them.
- Make payments on time: If you retained some debt post-bankruptcy or you’ve taken out new lines of credit, make sure that you’re making all of your payments on time. This can have a tremendous impact on your credit score.
- Keep balances low: Additionally, try to keep your credit balances low. A high credit balance will prevent your credit score from increasing.
- Consider taking out a secured credit card: Although lenders may be leery to extend credit to someone who has sought out bankruptcy protection, there are still credit options available. One option is a secured credit card, where a security deposit is turned over as collateral once the account is opened. This can give you the opportunity to demonstrate that you can maintain a line of credit and make payments on time.
- Create a budget: A lot of financial woes are attributable to problems with money management. This is where a budget can prove beneficial. Creating and sticking to a budget is even more critical once you’ve pursued bankruptcy, since you want to make sure that you’re able to make all of your debt payments on time.
- Monitor your credit reports: After bankruptcy, you’ll want to make sure that you continuously monitor your credit report to ensure that discharged debts are removed and that your bankruptcy clears when the time comes. You’d be surprised at the number of errors that can be found in a credit report.
Keep in mind that rebuilding your credit is going to take time. That being said, there are a lot of options out there that could allow you to have access to the credit that you need while you continue to rebuild your credit score.
Is bankruptcy right for you?
Although there may be some credit challenges post-bankruptcy, you have to consider if those issues are worse than continuing to struggle with your current debt load. After all, a lot of people waste years, if not decades, stressfully trying to claw their way out of debt only to find that they’ve fallen deeper into the pit. The effects of bankruptcy on your credit, on the other hand, are temporary in nature. In other words, bankruptcy can provide you with the relief that you need and the fresh financial start that you deserve. If you’d like to learn more about the bankruptcy process and what it can do for you, then please consider discussing the matter with an experienced attorney you can trust.