Many people worry that if they file for bankruptcy, they will never be able to recover their credit scores and financial footing. However, sometimes filing can mean that you're taking the first step toward gaining actual financial freedom, especially if you choose to follow a budget and use your future money wisely.
If you're concerned about rebuilding your credit after bankruptcy, here are some tips that can help you bring those numbers back up into the good (or even great) range.
1. Stick with court-ordered payment plans.
The type of bankruptcy you file matters. Sometimes, your debts are resolved when you file. Other debts are set on a payment plan for a number years based on your income. No matter which solution your case allows, you need to make sure that you prioritize paying off any remaining debts after the filing process is complete.
Remember that creditors and collections companies are not able to hound you for payment after you file. Everything is done through the legal system, so don't pay debts to creditors unless your bankruptcy attorney has told you that you are still supposed to. Some debts, like student loans, are often not included in bankruptcy filing.
2. Get a pre-paid credit card.
Rebuilding your credit takes patience, and you probably won't be able to open a normal credit card with a high limit, lower interest, and awesome cash back and travel miles features. You'll have to start small. Talk with a banker at your local institution about getting a secured credit card that you pay into before you can use it. This card will act as a debit card, since you can only spend money that is on it, but it will work to build your credit. After a while, you'll qualify for a low-limit card. Make it a point to pay off your balance in full each month, and do not use it for large purchases that bring the card balance close to the limit. These actions hurt your score.
3. Pay your bills and rent on time.
Bills, especially bills for phones and utilities, should always be paid on time. These companies can report late or missed payments to credit bureaus, and your score can be affected by your reliability. Avoid late fees and budget in a way that prevents overdrafting in order to cover the cost of automatically deducted bill payments.
Paying your rent on time is also essential because it can be challenging to find an apartment when you have a low credit score. So, to offset your low score, you need stellar references from previous landlords. If you were often late or missed paying rent, you won't have a good rental history to combat your low scores.
4. Get a job that provides a steady paycheck.
Lenders like to see proof of income in the form of bank statements and pay stubs. If you are an independent contractor or freelancer, it's harder to raise your credibility as a good borrower simply because you have more risk and variability without the guarantee of a particular salary paid at a particular time every month, day in and day out. Even a part-time job that provides some apparent stability in income can help your credit with lenders.
5. Prepare to pay more.
If you need a car or home loan, you may not be able to get the best rates available, but also don't have to settle for the worst. You'll pay more in interest, but you can combat that higher cost by deciding to put more toward a down payment or by refinancing in a few years when your credit has improved.