When you feel crushed by the insurmountable debt; filing for chapter 7 or chapter 13 may seem like a last resort. Even though filing for bankruptcy is at times the only way to get rid of debt, the ghost of the bankruptcy past may continue to haunt you for 10 years as it reflects on your credit score.
A great majority of Americans believe that there is no bouncing back out of bankruptcy. As if Bankruptcy is some kind of a Bermuda triangle; an unchartered territory from which no one returns.
To clear things up, there are many people who have applied for bankruptcy and resurrected their credit score post-bankruptcy. More importantly, they have lived to tell what lies on the other side of bankruptcy.
How long does it take to rebuild my credit history?
Bankruptcy could be anything but not the end of the world. It’s not like you can’t open a new line of credit until the bankruptcy is removed from your credit reports. Nor a bad credit score will be stuck at bad till eternity. Decisions you make post-bankruptcy can help you rebuild your credit.
Credit mistakes don’t stick around forever. The dent on your credit score and the time taken to rebuild your credit score depends partly on how grave the blow was and when had it happened.
However, we don’t want you to bury your head in the sand; bankruptcy can linger for up to 10 years. You ought to see improvement as you start amassing positive credit information no nullify the big negatives.
Rebuilders may have an edge over those starting from scratch; running credit lines (not all accounts are closed post-bankruptcy).
If you have lines of credit, you should pay off the balances immediately and ensure that your credit utilization rate is 30%. Both these things will help in reviving your credit score.
Had to go through Bankruptcy? There’s more fight left in you
After bankruptcy, lenders will assess whether your current streams of income are sufficient to pay your current financial obligation. A lighten up debt increases your chances of getting credit.
Moreover, lenders will be assured of the fact that you won’t find bankruptcy as an easy escape towards paying off your obligations; you can’t file for bankruptcy for at least the next eight years.
Getting started is the toughest part and it becomes increasingly difficult to start all over again (once your credit has been left to ruins). However, there a couple of basic things that you must do in order to set up a perfect base for the revival of your credit score:-
1. Create an emergency fund
It’s hard to find a personal finance piece on the internet which doesn’t talk about creating an emergency fund. Building an emergency fund may sound old school and some people may not find the idea of saving for contingencies to be enticing.
However, it’s an emergency fund which saves you from opening other lines of credit; saving you from early pay off penalties and ever-increasing interest charges. Having no emergency fund is like stepping into the battle zone without wearing an armor (If this analogy helps).
2. Create a budget
If you have recently filed for bankruptcy, the pre-discharge counseling that you went through would have made you acquainted with every bit of having a budget. Just in case you couldn’t register all of it and need further help, below are a few reads which will help you in setting up the right budget for your finances.
How to get credit after bankruptcy
Even though your goal of building a credit score is similar to that of someone who is a novice, but your situation is different. Your problem isn’t that you haven’t got any credit history to back up your demand for credit.
Instead, your history is tainted and it’s clearly visible to the lenders who can’t see through it to judge your pious intentions.
An omission, repetition or a minor log on your credit report could do considerable damage to your credit score. If you find any errors in your credit report, you have to dispute and rectify them.
Undeniably, there will still remain negative information which is accurate. The reports will continue to show bankruptcy for 10 years and it doesn’t have to necessarily make you a pariah in the eyes of the creditors (unlike the common belief).
Further, it is advised to check your credit score each month so that you have in mind what all financial choices are affecting your credit scores and how.
It’s also important to check your credit score from the same source otherwise you tracking endeavors will lose relevance as you would be comparing pink cows to the usual ones.
It is seen that people may have a higher credit score post-bankruptcy because they purchase financial products which help them in rebuilding their credit and become very particular about their monthly payments.
Getting a clean slate on your credit report (except of course the blot of bankruptcy) will help you to apply for credit products which help in reviving your credit score.
The hunt for the perfect credit product
After bankruptcy, creditors will be dissuaded after looking at your credit history. You can make up for their inhibitions and insecurities by giving extra assurances that creditors won’t regret lending you the money.
Here are several ways of redeeming your financial profile. The below-mentioned credit products will set your ball rolling whilst restoring your credit score.
There are two different variants of secured loans available in the market today. One variant is given in turn of a deposited amount (which is not accessible to you until the loan is paid off). You can’t liquidate the money that is freeze with your creditor until the loan is paid off in full.
The second variant doesn’t require any cash payment upfront, though the credit given to you is kept in a savings account. This money which is loaned to you is made accessible to you only after you have made the necessary payments.
In return of buying a secured loan, the financial institutions send an affirmative report to the credit bureaus that you are living up to your financial commitments.
Secured credit card
This kind of card is secured by the deposit you pay and the credit limit is decided by the amount of deposit. A secured card more often than not has secured fees and it might carry a high-interest rate as well.
A secured credit card could be used as a carrier to get a higher credit score, and once you are eligible, you are advised to swap it with an unsecured card.
Know that you could be rejected for a secured card. Read the fine print and eligibility criterion as every application puts a dent on your credit score.
This dent could be made up for in case your application is approved, use the credit card smartly and do no exploit the credit utilization rate beyond 30%, and last but not the least, pay on time.
Here are some of the best credit cards to consider after bankruptcy:
1. Capital One Secured Mastercard
Among all the bankruptcy credit cards, the Capital One Secured Mastercard is one of the best simply because there is no annual fee required. You have the choice of making an initial deposit of either $49, $99, or $200 to get an initial credit limit of anywhere between $200 and $3,000.
If you deposit more money before the account is opened, you can get a higher credit line. The standard interest rate for purchases is 24.9% APR.
2. OpenSky Secured Visa Credit Card
Your credit won’t be checked when you apply for the OpenSky Secured Visa Credit Card, making it easy to get approved for. Since it’s a secured card, you’ll need to pay a refundable deposit upfront which you can choose yourself from as little as $200. This credit card is designed to help consumers rebuild their credit, whether they’ve filed for bankruptcy or other debt settlement process.
Not only is there no credit check required, there’s no bank account required either. You will, however, be responsible for paying a $35 annual fee, as well as a variable APR of 18.64%.
3. Wells Fargo Secured Visa Credit Card
Another great card for building credit, the Wells Fargo Secured Visa Credit Card requires a deposit (at least $300 for this particular card) which becomes the credit limit. Cardholders will have the benefit of car rental collision damage insurance, roadside assistance, and cell phone protection up to $600 if the service is charged to the card.
There’s a $25 annual fee for this credit card and an APR rate of 20.24%.
4. USAA Secured Card Platinum Visa
Cardholders of the USAA Secured Card Platinum Visa can set their own credit limit by choosing a deposit of anywhere between $250 to $5,000. Like the Wells Fargo Secured Visa Credit Card, the USAA Secured Card Platinum Visa offers collision damage coverage for most rental cars.
The variable APR rate ranges from 11.15% to 21.15% with an annual fee of $35.
5. Prepaid Credit Cards
Alternatively, you may want to consider getting yourself a prepaid card in order to start rebuilding your credit, even if you haven’t been discharged from bankruptcy just yet. Prepaid credit cards serve as alternatives to traditional credit cards.
Rather than taking money out on credit, you are only permitted to spend the money you put into your card. The biggest difference between prepaid cards and traditional credit cards is that the former requires you to pay before you spend, while the latter allows you to pay later.
Similar to a debit card, the money you spend already needs to be in your credit account. You load your card with a certain amount of funds first, after which you can spend up to that amount.
Prepaid credit cards are reloadable, which means you can repeatedly reload your card to replenish whatever funds you’ve spent. You can then continue to make purchases using your card up to your limit. Some cards allow you to link your prepaid card account to your checking account to make loading your card more convenient.
You will likely have to pay a fee for card activation, as well as an ongoing monthly fee. Some prepaid cards might also charge a fee when used at an ATM machine.
Co-signed credit card or loan:
This could help your credit score tremendously. The toughest part is that you will have to find a family member or a friend who is willing to put his reputation at stake for you.
A co-signer will be under the radar in case you default the payments. Moreover, the co-signer can face withdrawal/borrowing limits because of the doubled up financial obligation.
What else could you do?
If asking for a co-signer is too much, ask for the authorize use of your peer’s credit card and make payments on his/her behalf. Your credit score will improve should the credit card report this payment activity of yours to the credit bureau.
Once you get a credit, make it a point to pay on time (the ghost of defaulting past). Keep your credit utilization rate low. Anywhere below 30% is advisable but below 10% is the best.
You have already got a chance at redemption, so you can’t be begging for pardon for a late payment or fail to keep up with the soaring credit balances.