After your bankruptcy is complete, you may be left wondering “How can I rebuild my credit?” Today’s post will give you a comprehensive overview of how you can begin to rebuild your credit after bankruptcy.
Your credit score is derived from three different credit reports, which you’ve likely heard of:
Using your credit reports from these three bureaus, a credit “score” called a FICO score, is determined. This score is used to determine the lender’s risk in extending credit to you. But it isn’t only lenders that use these scores, also utility companies, cell phone companies, and insurance companies use your credit score in order to approve or deny you for services. The lowest score is 300 and the highest is 850. The higher your score is, the better. It is very important that you know what is comprised in your credit reports and score.
Before we get into how to rebuild your credit after bankruptcy, let’s stop and take a minute to discuss some other things you may have heard after bankruptcy. Many times, you may hear people saying that you should stay out of debt and to use cash to pay for everything. While this advice is well-intended, I actually do not agree with this 100%. I believe that you should not rely on credit to pay for your day to day items, or use it to otherwise subsidize your lifestyle. But having credit, good credit, is so important in other aspects of your life. As I mentioned earlier, if you need to set up a new utility account when you move, get a new cell phone contract, or obtain a new car insurance policy, all of these companies are going to be looking at your credit. Having credit is such an integral part of our financial lives. So I don’t think that avoiding it like it’s the plague is the answer; we just need to be smart about our credit choices and use credit to leverage ourselves and our finances.
Also, keep in mind, that if you’re using cash only, you are not establishing any track record of your payment history. How will anyone know that you pay your bills on time?
So what are my five action items to rebuilding your credit? Let’s get into it!
- Get your budget in order. I know this post isn’t necessarily about budgeting, however, it is important that any bad spending habits you had before the bankruptcy aren’t repeated. Use our budgeting guide to get your budget in order. Now that you have your fresh start, we want to sure we build upon it and not let history repeat itself.
- Pay your bills early. Set up those automatic payments so you don’t even have to think about when things are due. You know when you’ll be getting paid, so plan your budget and bill paying in a time frame that is manageable to you. No more waiting until the day something is due to pay it. We’re gonna knock those bills out as they come in. Come on, you don’t really want that electric bill sitting on your kitchen counter for three weeks anyways, do you?
- Review your credit reports. I know, I know! Don’t throw tomatoes. I know you probably don’t want to look at your credit report. But you have to. No more burying your head in the sand. You want to put yourself in the driver’s seat of your finances, right? Well, then we need to know what’s on your credit report. And if something is inaccurate, it needs to be fixed because it’s probably hurting your credit score! And we’re not putting up with that. Everyone is entitled to order their free credit report at http://www.annualcreditreport.com
- No more living on credit cards. All of the cards you had before bankruptcy? Gone. And while that debt is gone, it also means that your ability to rely on them for your day to day purchases is gone as well. So, farewell to the days of using credit cards to purchase more than what you can afford and just paying the minimum balance. Nope! You are self-sufficient and are going to live within your means. This takes us back to action item #1 above.
- Use credit as leverage. Once you get your first credit card after bankruptcy (as yes, you should get a credit card after bankruptcy), you are going to start using it to increase your credit score (read: not to live on). You should start trying to rebuild right away. There’s no need for you to wait. You need to start showing positive payment history on your credit report. And the sooner you do so, the better. Bonus tip? Use the credit card to pay for gas for your car. Then, pay the bill in full every month the credit card statement comes. If you’ve obtained your credit card from a mainstream credit card company, you shouldn’t be charged any interest or fees when you pay the card in full.
Remember! If you need help creating a budget, we have a free guide and template to help you do so.
Don’t forget- your bankruptcy isn’t the end for your credit. You have an opportunity to grow and rebuild; do it! This is a new chapter of your life, and I want YOU to write it. You’re going to be in control, and I’ll be here to support you every step of the way.
Following these tips will ensure that you’re on your way to rebuild your credit. I’ve worked with many clients over the past 10 years, and I’m so happy to hear my clients’ success stories after their bankruptcies are complete. They’ve rebuilt their credit, obtained new jobs, bought homes, built their retirements, and many other financial successes. We look forward to helping you achieve your financial goals too!
That’s all for now! Talk to you soon 🙂