3 Steps To Restoring Credit After Bankruptcy

Filing for bankruptcy can be a humbling experience . If you are going through this process you may be  thinking about how it is going to affect your financial future. Questions like "will bankruptcy destroy my credit worth? or "can I apply for a loan or credit card again?"

Although you may be in a dark place right now there is a silver lining. There are effective ways in restoring credit after bankruptcy. There are really two approaches that you can take. You can either rebuild your credit by doing it yourself or you can hire the professional services of a bankruptcy attorney to do it for you.

There is nothing an attorney or bankruptcy lawyer can do that you can't do yourself however, in saying that the laws pertaining to financial bankruptcy whether it be chapter 13 or chapter 7 bankruptcy can be complex. Therefore, an attorney can save you time by providing this expertise.

1. Ways To Restoring Your Credit After Bankruptcy

When you have received a bankruptcy discharge you should begin the process to restore your credit by obtaining a copy of each credit report. There are 3 reports that are produced by the major collection agencies who are Experian, Equifax and Transunion.

You can get report from these direct from the agencies for a fee or you can go to www.annualcreditreport.com and obtain one for free.

When you receive your reports you need to go through them and check carefully for any mistakes. When it involves bankruptcy you want to be looking for debts that have been discharged i.e. they are no longer your debts, but they are still appearing on your report. 

It is not uncommon for creditors to report outstanding debts that have been discharged when you filed  for bankruptcy.

Checking your credit report for mistakes and misleading information is very important for protecting your credit score.  Debts that still appear means you are perceived as still being responsible for them even if they've been discharged. This process will ensure that your report remains accurate and up to date.

If you find a mistake then you will have to dispute this with the relevant collection agency. If you are doing it yourself, you will have write a dispute letter with reasons why you are making dispute. You should also send supporting documents to strengthen your case.

The collection agency has to begin investigating your claim within 30 days. If you have hired a credit restoration company they will do this for you.

2. Apply For A Secured Credit Card

One of the fastest ways that you can rebuild your credit worth after bankruptcy is to apply for a secured credit card.  The concept of a secured card is simple. You have to put down a cash deposit and it is this deposit that is used as the security. Generally the amount you deposit becomes the actual credit limit.

By using a secured card you can begin building your credit history which is an essential step after a  bankruptcy discharge. The advantage with secured cards is that they are easier to obtain if your record has been damaged due to becoming bankrupt.

It is important to point out that secured cards have more fees compared to normal cards Therefore, before you apply make sure you are fully aware if the card issuer is charging annual fees and services charges. Also, you will want to use secured credit cards that report to the credit bureaus otherwise you will lose out on the benefit of establishing a credit history.

If you use the secured card the card wisely and pay of the outstanding balances before they are due you will gradually build up your credit score. With a year to 18 months you should have rebuilt your credit to the point where you can qualify for unsecured cards that have lower costs and interest rates.

3. Apply For More Credit Lines Gradually

Having more revolving accounts and installment accounts will also a good strategy when rebuilding your credit score. The vast majority of people who are credit worthy have more that one card with a high profile issuer and you should try and do the same.

When lenders calculate your credit score they look at certain factors and these will include the types of credit you use and the amount of new accounts you open. However, do not open too many accounts at once especially if you have recently been discharged from bankruptcy as this could raise a red flag and damage your score.

You may want to consider retail or store cards but you must be disciplined when using them. These kind of cards have very interest rates therefore, it is important that you settle the payments before the due date. If you do use a retail card then use for cheap items that you can afford to pay off.  

As you bide your time you will soon be in a position to qualify for different lines of  credit. For example, two years after a bankruptcy discharge you should be able to qualify for a Federal Housing Administration home equity loan or mortgage. As this kind of loan is backed by the government lenders are more lenient with people who have low credit scores or who have recently come out of bankruptcy.

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