When your bankruptcy is finalized, you may feel an overwhelming sense of relief. You no longer have massive debts hanging over your head and you are ready to start fresh. However, you know you still have challenges ahead, particularly on how you can rebuild your credit after your bankruptcy.
So, what steps do you need to take to bolster your credit score post-bankruptcy? Here are five to keep in mind:
- Check your credit report and credit score often. You want to avoid having inaccurate information show up on your credit report that will hurt your credit score further. You may discover a lender didn’t dismiss your bankruptcy debt as it was supposed to. You also likely will notice your credit score actually goes up right after your bankruptcy. This is largely because you no longer have such significant debts.
- Establish a budget. You need to establish a budget where you live within your means and can pay your essential bills each month.
- Start an emergency fund. As part of your budget, you should begin building an emergency fund. Start with a goal of saving $1,000. Then work to save $2,000. Instead of paying for emergency expenses, such as car repairs, on a credit card, you can use your emergency fund to pay for these.
- Pay your bills on time, especially if you still are paying on your student loans, vehicles or mortgage. You want to show credit lenders that you have changed your spending habits and now reliably pay off your debts.
- Obtain new credit cards, but only make small purchases with them and pay off your card credit balances every month. You may need to seek out a secured credit card to obtain a new credit card or obtain cards from retailers or gas stations (which have lower thresholds to qualify). Yet you also need to be careful to avoid applying for multiple credit cards, especially if companies already have rejected your applications. You don’t want lenders thinking you are desperate for credit.
Building back your credit after bankruptcy will take time. If you sought Chapter 7 bankruptcy, your bankruptcy will remain on your credit report for 10 years. Under Chapter 13, your bankruptcy stays on your credit report for 7 years. Despite that, you still can bolster your credit score during that time and show lenders you are reliable in paying your bills. Ultimately, paying your bills on time and avoiding racking up large debt again will establish better credit for the long-term.