How to Rebuild Your Credit After Bankruptcy

When people come into my office one of the first things they ask me is often “how will this affect my credit?”  The answer is complicated.  Some of my clients come to me having never missed a payment in their life.  Their mortgage, their car payment, and their credit cards are all current.  Typically these individuals have been doing everything possible to maintain their payments, including using one credit card to pay the minimum payment on another.  For these individuals maintaining their good credit score, despite the hard times they were enduring, is part of their identity.  Unfortunately, for these individuals a bankruptcy filing will have the most dramatic affect on their credit score.  However, many other individuals come to me years after first experience financial hardship.  Long before stepping into my office they have been forced to default on credit cards or give a car back to the bank in order to have enough money to put food on their table.  For these individuals a bankruptcy filing will have little affect on their already low credit score.
A bankruptcy filing remains on your credit report for up to ten years.  However, its affects on your credit score are most dramatic immediately after filing.  Their is no need to wait ten years to rebuild your credit score.  Below are some positive steps that you can take to rebuild your FICO score in just a few short years:
1)  Obtain credit:  It is important that you have a payment history if you want to rebuild your credit.  Your payment history comprises up to 1/3 of your credit score and the lack of a payment history can be as damning as a bad one.  By cautiously obtaining a few small credit lines you will be able to re-establish a payment history.
2)  Don’t pay late:   As stated above, your payment history is a large part of your credit score.  If you pay late on your bills your score will be impacted in a dramatic manner.  You may want to consider putting due dates on your calendar or setting up your bills for automatic payments.
3)  Know your credit limits:  Many lenders look to your your debt to credit ratio when processing your loan application.  It is assumed that individuals whose balances are low compared to their available credit are more able to repay these debts.  Try and keep your debt to about one third of your available credit.
4)  Keep lines of credit open.  Even if you don’t use a credit card, the available balance is taken into account in determining your debt to credit ratio.  Keeping these accounts open is a good way to rebuild your credit score. However, it is important to continue to monitor these accounts to be sure that the accounts remain secure.
5) Work with creditors who positively report.  Their are three types of creditors.  First their are creditors who do not report at all.  These are typically businesses that work on an upfront cash basis.  Certain cell phone companies, for instance, require you to pay each month up front.  Failure to pay results in your phone being turned off, but you have no liability for any unpaid balance.  These creditors do not report positively or negatively on your credit report.  Second their are creditors who only report when you have been bad.  While you pay on time every month, they do not report anything to the credit bureaus.  However, the minute that you miss a payment they file a report, harming your credit.  Finally we have creditors who positively report.  These creditors tell the agencies what you have done each month.  Each time they report that you have paid on time your credit score improves.  It is important to talk to all creditors (credit card companies, landlords, cell phone companies, auto-loans, etc.) to be sure that they positively report.
6)  Review your credit report regularly.  In order to ensure that your credit score heads in the right direction it is imperative that the information on the report is accurate.  Each year you are entitled to receive a free copy of your credit report from each of the credit reporting agencies.  Be sure to take advantage of this opportunity to review your credit status and report any errors.  Take this time to review your credit repair plan and make any adjustments based on your credit reports.
If you are considering bankruptcy you should contact an experienced attorney to help guide you through the bankruptcy and rebuilding process.  Second Chance Legal Services would love to help.  Call (586) 806-2701 today to schedule your free consultation.