People have divided views on bankruptcy. Some people think it’s a devastating loss they’ll never recover from. Others look at it as a way to take a massive weight off their shoulders.
The truth is somewhere in between. Bankruptcy can be a powerful lifeline when you’re in over your head, but it does have consequences. The good news is that the major consequences, the hit to your credit, is repairable.
If you’re setting off on the journey to reestablish credit after bankruptcy, start with these tips.
How to Reestablish Credit After Bankruptcy
You can understand how creditors have a hard time trusting you after you file for bankruptcy. Luckily there are some ways to rebuild that trust.
Get a Low Credit-Friendly Credit Card
You may not realize this, but most credit card companies will cancel your credit cards when you file for bankruptcy. Not only is that scary because it takes away a lifeline, but it also takes away your ability to build a good payment history.
After your bankruptcy process is complete, you need to get a new credit card. There are cards meant for people with poor credit history, like this card a range of low credit limit options.
Make a Payment Calendar
When creditors look at your payment history, they aren’t just looking at credit cards and loans. On-time payments for bills like rent and utilities will help you rebuild your credit too.
To stay on top of your bills, make a calendar. Your phone’s calendar is a great tool because it can send you a reminder a week before your bills are due.
Get a Co-Signed Loan
Making consistent payments on a loan will go a long way toward reestablishing your credit. Of course, that’s usually a challenge because no one will give you a loan with bad credit.
Find out if a friend or family member will co-sign on your car loan or another manageable loan. This gives you an opportunity to build your credit without the massive fees a lender will charge for a borrower with a bad credit history.
Keep Track of Your Hard Inquiries
Whether or not you realize it, every time you apply for a credit card or loan, it goes onto your credit history even if you aren’t approved. It’s called a hard inquiry. If you have more than two hard inquiries in any one-year period, it will hurt your credit score.
If you have a habit of saying yes to those in-store credit card offers, pump your breaks. Start keeping track of each time you apply for credit. Make sure you don’t apply for new credit unless you’ve had fewer than two hard inquiries in the past year.
Getting Back on Your Feet
Bankruptcy can happen to anyone. Medical bills or unemployment can destroy your financial stability in a heartbeat.
Thankfully, bankruptcy offers a way to get your head back above water and the credit damage is fixable. The tips above can help you reestablish credit and move on with your life.
For keep building your financial future, get more helpful tips on our personal finance blog.