One of our favorite movies of all time is Rocky IV, where he defeats the unbeatable Drago. Rocky gets hit hard, but doesn’t give up, and because of his hard work and training, defeats his opponent. Recovering from a bankruptcy is a lot like Rocky’s journey (minus the cool soundtrack).
When you file for bankruptcy, it’s usually your last resort. You’ve been backed into a corner and the punches keep coming, but bankruptcy lets you get out of that corner and continue the fight. It’s time to put on the gloves and face that seemingly unbeatable foe and get started repairing your credit score.
4 Steps to Repairing Your Credit After Bankrupty
Examine Your Credit Report: The first step is to get a copy of your credit report and go over it with a fine-toothed comb. You need to check to make sure all the accounts were placed on the bankruptcy and that all the information is correct. There may be negative accounts on your credit report that were paid off prior to the bankruptcy which have inaccurate information or shouldn’t even be on it anymore. The bankruptcy will have a big impact on your credit score, so anything you can do to raise it by making sure everything on your report is correct only helps.
Create a Budget: If you declared bankruptcy, then you were in a negative debt situation to begin with. You need to create a realistic budget based on your income. This budget needs to include all bills and necessities as well as an amount dedicated to repairing your credit. You can use this to start a nest egg savings before applying for a new credit or use it to make payments on new credit.
Build Your Credit Score: Declaring bankruptcy doesn’t mean you will not be eligible for any credit at all. There are companies that specialize in providing credit, such as credit cards, to people with bad credit scores and bankruptcy. The company is taking a risk giving you credit, so the interest rates on these cards are high. You can also apply for a secured credit card, where you pay the credit amount first and they keep it on hand in case you default on the card. You have credit and the card will charge interest and report to the credit bureaus.
Note: Do not apply to several credit cards or other credit lines. Bankruptcy is a red flag for most creditors and will be difficult for you to be approved. Each time a creditor looks at your report, it can have an impact on your score. These are called hard inquiries.
Pay On Time: It takes 10 years for a bankruptcy to be taken off your credit score, so it’s important to build your credit the right way. Make sure you pay all of your bills on time because late payments create a negative impact. Do not get too much credit debt and keep your balances to about 10 percent of the total limit.
If you follow these steps, then the bankruptcy can be the inspiration needed to beat that unstoppable foe of debt and get your life back on track. You can give debt a K.O. if you are willing to be disciplined and fight to the finish.