How do you begin to rebuild your credit following a bankruptcy? A common misconception about bankruptcy is that it will forever ruin your credit. Many people fear that they will never again be able to obtain a mortgage, car loan, or credit card. A bankruptcy will show up on your credit report for ten years, but the impact on your credit score will lessen over time. Here are some tips to help rebuild your credit.
Create a budget and live by it. The debtor education class that is mandated during bankruptcy will help in this regard. Determine how much of your income is needed for necessities and how much discretionary income will be left. Remember to set aside some amount for savings. Beware of exceeding your discretionary amount. A good rule of thumb is if you must borrow to make a purchase, then you can’t afford the item. Be disciplined enough to save over time and make the purchase when you have the cash.
Individuals with a poor credit history and those who have been through a bankruptcy can usually obtain a secured credit card through their bank or credit union. A secured card requires that you make a deposit that is equal to the credit line, in order to secure the loan. For example, a $1000 credit line would require a $1000 deposit. Use that credit card wisely and sparingly, making your payment on time each month. The financial institution will only tap the secured deposit if payment is not made. This secured credit card differs from a pre-paid card, where the amount of the purchase is debited as soon as the card is used. If you pay your bill on time each month, you will eventually be able to obtain an unsecured credit card.
Continue to make timely payments on debts that survived the bankruptcy. If you have student loans or mortgage payments, pay them on time. Continue to make child support and alimony payments when they are due. Check your credit report periodically for accuracy and dispute any errors.