How to Improve Your Credit After Bankruptcy

May 23, 2012

If you have filed for bankruptcy, you may wonder what your credit will look like after you obtain your discharge of debt. You understand that a bad credit rating means credit cards and loans will be more expensive and harder to get. However, you may be surprised to find your credit could be better than you expect.

Bad Credit?

The good news is your credit can probably only improve. If you had to file bankruptcy, your financial situation was probably rather unstable. All of your creditors were aware of this; after all, they were the ones harassing you to pay their bills.

Once you complete your bankruptcy, you should have little or no debt. Creditors also know you cannot file another bankruptcy for up to seven years, depending on which type you previously filed.

This means as long as you are employed, you can use all of your income to pay current expenses. The most important rule after bankruptcy is pay all bills on time and the way to do that is to purchase only what you can afford with your present income.

The Need for Discipline: Develop a Budget

In today's instant-gratification society, with billions of dollars in advertising constantly working to entice you to spend, spend, spend -- you have to learn to say no. You must control your spending to avoid returning to the debt roller coaster. You need to carefully purchase items you really need and stay away from impulse purchases.

If you have successfully completed a Chapter 13 reorganization bankruptcy, you can adapt the bankruptcy plan as your budget, but instead of paying creditors, pay yourself the money to fund your savings account. Your bankruptcy attorney is a good resource on how to use a budget wisely and how to avoid fraudulent offers that promise to fix or repair your credit.

Money in the Bank and a Secured Credit Card

You will want to keep a close watch on your credit report to ensure it is accurate. You can obtain a free copy from the official site AnnualCreditReport.com.

With spending under control, you want to create a small savings account as a cushion for any real emergencies (medical, car repair). Once you have that established, you can apply for a secured credit card, which functions like a debit card. You deposit $500 with the credit card issuer and that becomes your "credit limit."

Once you have had that card for a period and have demonstrated to the issuer that you can responsibly use it, you can apply for a regular credit card. It may have a high interest rate, but that should not matter, because you will only use it to make purchases you can pay off at the end of the month. Eventually your responsible financial behavior will be reflected in a climbing credit score.

Article provided by Trepeck Bane PC
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