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Credit after Bankruptcy: Stepping into Your Financial Future

For those considering declaring bankruptcy, it’s the biggest question — can you get credit after bankruptcy?

Bankruptcy does impact your future finances, but the good news is that the outlook isn’t as dire as you might think. With good financial planning, you can rebuild your scores and begin to receive offers for loans, including mortgages, within months of declaring bankruptcy .

Bankruptcy and your credit score

Your ability to get credit after bankruptcyis linked to your FICO score, a three-digit number created by rating agencies to “grade” your creditworthiness. Although bankruptcy stays on your credit report for seven to ten years, it’s impact on your rating can begin to decline immediately because often it’s the most recent activity in your history that has the most weight. In fact, many of our clients begin to see offers of credit within 90 days after bankruptcy.

Managing your finances well can help you earn good financial grades in the future, and begin to see your score rebound. Here’s how:

  • Pay all of your bills on time. Just as late payments can negatively impact your FICO score, a history of on-time payment can positively impact your rating. Whatever bills you have each month, ensure your payments are scrupulously on time.
  • Get and use credit responsibly. If a serious spending problem is what put you into bankruptcy in the first place, this may not be the best plan. But if you feel ready and able to responsibly manage your spending, get what credit you can and manage it well. Try a secured credit card, designed for those with financial blemishes, and pay off the entire balance each month as scheduled. This will begin to demonstrate that you can manage your finances well.
  • Don’t max out any credit account. Part of your FICO score is linked to the ratio of available credit to credit used — in other words, how close to your limit you are. You want to make sure that you never exceed one-third of the limit on any account. So, if your credit card limit is $500, stop spending at $150, and pay off the balance. This may seem like a difficult restriction, but it shows financial discipline that will pay off in your FICO score.
  • Maintain an installment account. You’ll also need some installment credit, like a car loan, student loan or home loan to show your credit stability. If you still have a student loan after bankruptcy, pay off as much as possible each month. You can probably still qualify for an auto loan after bankruptcy, although the rates will be higher than before bankruptcy. But by paying these rates in the short term, you can get better rates a year or two down the line.
  • Clean up your credit report. Although many of your credit accounts may be eliminated due to bankruptcy protection, they may still show on your credit report as open and overdue. There can also be other errors on your report of which you’re not aware. Take advantage of your right to a free annual credit report (available from AnnualCreditReport.com, a government-mandated secure site) and look it over line by line. If anything seems incorrect, contact the appropriate reporting agency to make adjustments. Accounts that are listed as open or overdue that were included in your bankruptcy should have their status changed, in order for you to be able rebuild your credit.

These steps will help you rebuild credit after bankruptcy and begin to regain the financial flexibility you once had. Some financial discipline now will provide a strong foundation for your financial future.

Wondering how to get started with your own financial turnaround story? Contact us today for a free consultation with a Columbus bankruptcy attorney.