Taking the right steps now will help you avoid facing another round of problems later. It helps ensure that this time things won’t go south – you’ll have the right strategy and tools to keep you out of bankruptcy courts and on the right financial path.
Bankruptcy is not the end of your financial life. These four steps can be a fresh start so you can move forward and build a better financial outlook than you’ve ever had before.
Step 1: Remove negative items from your credit report
Bankruptcy will be a negative item on your credit report, but it may not be your only one.
Any type of financial distress is almost always going to create a lot of negative remarks on your credit report. Every missed payment, overdrawn credit limit, and collections account will appear on your credit file.
Once your bankruptcy is complete, at least some of these negative remarks should be removed. Overdrawn credit limits should be zeroed out, collections accounts should be closed, and your account statuses should all say things like “Settled.”
Of course, creditors can be a little slow to update this info, and that slowdown will also hurt any efforts you make to rebuild your credit. So, the first thing you need to do after bankruptcy is clean up your credit report through credit repair.
You can do this by contacting your creditors, the credit bureaus, or using a service like SmartCredit® that puts the whole process on one platform. On SmartCredit, you can dispute all of the negative items on your credit report with easy action buttons.
Need professional help fixing your credit? Contact us today.
Step 2: Get a secured credit card
Creditors aren’t going to send you their best credit card offers after your bankruptcy is complete, but you need to start building better credit. This is where secured credit cards come in. Creditors offer secured credit cards as an easy way for high-risk borrowers to build better credit.
Here’s how to get one (and use it wisely):
- Apply for a secured credit card online.
- Put down a deposit to open the credit line. On most cards, the credit line equals the deposit, although some companies offer a small credit line bonus above the deposit you made.
- Make strategic purchases on the card, with the certainty that you can pay off each debt you incur quickly. In addition, never leave a balance on the card that’s over 30 percent of the available credit line.
- Pay your bill on time every month, paying off as much debt as you can every time. If you can zero out the balance every time, this is ideal for your credit and your budget.
Step 3: Diversify with a loan
The types of debt that you have matter when it comes to your credit score. So, you don’t want to just have credit cards, because this doesn’t show that you’re maintaining a good mix of debt. With that in mind, your next step on the road to better credit is to take out a smaller-sized loan that you won’t have any trouble paying back.
In most cases, this is going to be a small personal loan. You can use the money you receive for anything – home repairs, making important purchases, or some people even take out loans and divert the money to an investment. That way, you get the credit benefit of paying off the debt while building a better financial outlook at the same time.
In some cases – particularly if you really need a new set of wheels to get to work – then you may want to take out a slightly larger auto loan. This doesn’t mean that you head out to a luxury car dealer and go crazy. Instead, you opt for a much more economical car and may have to use a lender who works explicitly with high-risk borrowers.
Even better, you can lend to yourself. Self, formerly called Self Lender, is a platform that allows you to take out a loan using your own money as a security deposit. It’s a win-win: you get to build credit, and you don’t have to borrow money you don’t have to do it.
Whichever loan you choose, always pay the bills on time every month. If there’s no early repayment penalty, make bigger payments on the loan when you have the money available. Once the loan is paid off, consider taking out a different loan so you can continue to diversify and build a positive payment history in your credit file.
Step 4: Monitor your credit to watch your progress
Aside from ID theft protection, monitoring your credit after bankruptcy is one of the best uses of a credit monitoring service. After all, if you’re not watching your credit score, how do you know if what you’re doing is having the effect you want?
Besides helping you dispute negative items that bring down your credit report, SmartCredit can also help you monitor your credit report and credit scores. By signing up for a credit monitoring service like this, you can see how each step that you take affects your credit score. You can also make strategic decisions. For example, after a few months of paying off your secured credit card, has your credit improved enough to apply for an auto loan, or are you better off taking out a smaller loan first?
You’ll also be able to see when you’ve recovered enough to do bigger things, like buy a new home. Once you have your credit score back to a level you’re happy with, you can cancel your service or keep it going to make sure you maintain the highest score possible 365 days a year.
A special note on pesky collection issues
This is another important step that you may have to take after your bankruptcy is finalized. Once your bankruptcy filing is complete, every single account that you had in collections should be settled.
But that doesn’t always mean that the collectors get the message and stop calling you. If you’re still getting collection calls after your debts have been discharged and settled in court, then you need to take action. You may even be able to seek compensation for collector harassment if they really won’t leave you alone.