How to Improve Your Credit Score After Bankruptcy

improve your credit score

Many people struggle with finances but do not consider bankruptcy because they worry about the aftermath. Will they be able to buy a house or car in the future?

You can, but it means raising your credit score after bankruptcy, which will not happen overnight. A bankruptcy will stay on your credit report for up to 10 years. This may seem like a long time, but it doesn’t mean you won’t qualify for loans or credit. It is very likely you will qualify for a credit card after your discharge. Although the interest may be higher, paying this off in a timely manner can help rebuild your credit score.

Here are some ways to build credit.

Review Your Credit Reports

Obtain copies of your credit reports from all three major credit bureaus (Equifax, Experian, and TransUnion). Review them carefully to ensure all information is accurate, especially regarding the bankruptcy. Dispute any errors you find.

If you discover any past-due debt payments that aren’t included in your bankruptcy, get caught up on them as quickly as possible.

How to read your credit report

Your credit score is a three-digit number that provides a snapshot of your overall credit health based on information found in your credit reports. There are several resources that allow you to check your score for free including FICO.

What is a good credit score?

For FICO, credit scores from 670 to 739 are considered to be good, 740 to 799 are very good and above 800 are exceptional.

The calculation of your FICO credit score considers various factors. These include the amounts owed (30 percent), the length of your credit history (15 percent), new credit accounts (10 percent), and the diversity of your credit mix (10 percent). However, it’s your payment history that holds the most significant weight, determining 35 percent of your overall credit score.

If you find errors on your credit report, learn how to dispute them here.

Credit Inquiries

A credit inquiry is a record on your credit report indicating who accessed your information and when. There are two distinct types of credit inquiries:

Soft inquiries occur when you personally review your credit report. They also arise when current creditors assess your account or when companies plan to send pre-approved offers.

Hard inquiries carry more weight. These occur when lenders review your credit during applications for new credit cards, credit limit increases, loans, or mortgages. Additionally, hard inquiries may arise when a collection agency attempts to locate you.

While soft inquiries have no impact on your credit score, each hard inquiry can temporarily lower it by a few points. These inquiries are significant because they signal heightened risk to lenders, prompting questions about your need for additional credit.

Create a Budget

Develop a budget to manage your finances effectively. Make sure you can cover your living expenses while also setting aside some money for savings and debt payments. It is critical that you minimize how much debt you take on – whether it is debt not included in your bankruptcy or debt payments you are planning on using to rebuild your credit.

Consider a Secured Credit Card

With a secured card, you’ll make a deposit that serves as your credit limit. Use the card responsibly by making small purchases and paying off the balance in full each month. This demonstrates responsible credit use and helps rebuild your credit history.

Become an Authorized User

If you have a trusted family member or friend with a good credit history, ask if they can add you as an authorized user on one of their credit cards. This can help improve your credit score if the primary cardholder has a long, positive credit history and maintains a low credit utilization rate and on-time payments.

Pay Bills on Time

Consistently paying your bills on time is crucial for rebuilding your credit. Set up reminders or automatic payments to ensure you don’t miss any due dates.

Keep Credit Utilization Low

Aim to keep your credit utilization ratio low. This refers to the amount of credit you are using compared to your total available credit. Ideally, it should be below 30%. This shows lenders that you are not relying too much on credit.

Limit New Credit Applications

Avoid applying for multiple new credit accounts in a short period. Each application results in a hard inquiry on your credit report, which can temporarily lower your score.

Be Patient

Rebuilding credit takes time, so be patient and continue practicing good financial habits. Even though the bankruptcy will remain on your credit report for several years, its impact diminishes over time as you demonstrate responsible credit behavior.

If your debt-to-income ratio before bankruptcy was a problem, after you file you may be able to improve that aspect of your financial picture. You can read more about that here.

Bankruptcy may be necessary if you are drowning in debt. The aftermath can be frustrating, though, as rebuilding your credit score will not happen overnight.

The Law Offices of Adam M. Freiman can answer your questions about bankruptcy and help you get on the right financial track so it does not happen again. Call (410) 486-3500 or fill out the online form to schedule a consultation.


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