Bankruptcy is a problem that affects millions of people every year. Many people mistakenly believe that once you go bankrupt, you’ll never be able to use credit again. Although this is a misconception, it is true that it’ll be more challenging than before. Credit doesn’t come easy to those who have declared bankruptcy, though with time and patience, it’s possible to rebuild it (read more about credit repair). Here are a few tips to help you recover your financial history and rebuild your credit post-bankruptcy:
Don’t switch to a cash-only system
It can be tempting to give up credit entirely and live on cash alone. Unfortunately, at some point, you’re going to run into a situation where your credit matters. Many apartment buildings check your credit history, for example, and they might be less likely to rent to you if you don’t have any credit after your bankruptcy. Make rebuilding your credit a priority, rather than just giving up on the whole system.
Don’t apply for every single card out there
Did you know that every time you apply for credit, your score goes down slightly? Since you’ll be starting out from scratch, you can’t afford to drop your score right out of the gate. Instead, apply only for credit that you think you stand a fair chance at getting.
Try secured credit cards
Secured credit cards work like a credit card, but you back it up with your own cash. Make sure the card you choose reports to credit bureaus to ensure that you’re getting the benefit from using the card. However, use the card sparingly. Try and max out your usage at about 10% of the card’s limit. That way, you can keep your ratio of debt to credit low.
Keep all your debt current
Your recent payment history makes up about 35% of your credit score. That’s why it’s so critical to make all your payments on time. If you take out new loans or have a credit card, try setting up automatic payments to make sure they get paid on time.
Open credit as soon as possible
Once your bankruptcy is finalized, start applying for and opening up any lines of credit you’re planning on having. Your credit score does factor in the age of your accounts. Older accounts look better on your score. If you can, plan your financial future while you’re still going through the bankruptcy process. That way, you’ll be in a much better position to look for credit once it’s finalized.
Don’t let anybody tell you it’s a simple path to rebuild your credit after a bankruptcy. It can be incredibly challenging. However, with the right steps and the right attitude, it’s not impossible. Many people file for bankruptcy every year. Many of them are able to regain their financial footing by carefully and deliberately rebuilding their credit history and score.
Carly Lance loves to blog about personal finances whenever she can. She also is employed as the blog and marketing manager at Personal Bankruptcy Canada, a company of bankruptcy trustees that deals with people going through bankruptcy in Canada.