Repairing Your Credit After Your Bankruptcy

Although adversely affected by bankruptcy, your credit score can be rebuilt with responsible financial behavior.

Many people that are struggling with debt are hesitant to seek the relief that bankruptcy offers because they are afraid that their credit will be damaged. Although this is a valid concern, filing bankruptcy does not mean that you will never again be extended credit. Although bankruptcy will stay on your credit report for several years, seeking its protection hurts your credit much less than doing nothing, in the majority of instances.

If you do nothing, creditors will possibly sue you, win a judgment and start garnishing your wages. Secured creditors also have the option to repossess property pledged as collateral (i.e. your car or house). All of these actions have a severe negative effect on your credit score. On the other hand, many creditors see bankruptcy as meaning that you are getting your financial affairs in order and are more likely to extend you credit, because they know that you will be more likely to pay your bills, since your unmanageable debt has been relieved.

Although bankruptcy does initially cause your credit score to decrease, with some work on your part, it is possible to rebuild it soon after your bankruptcy has been completed.

How to increase your credit score

One of the fastest ways to demonstrate the responsible behavior that will repair your credit is to use credit cards wisely. This means charging only what you can pay off in full each month. Once you complete bankruptcy, credit card companies will likely extend you many offers. However, you need to be careful about which cards to carry, as many will have higher interest rates that can get you back into financial trouble.

Instead of traditional credit cards, it may be in your best interest to consider a secured credit card, especially if you tend to overspend. This type of card requires you to put a cash deposit into an account. Since the amount of the deposit determines your credit limit, secured cards make it impossible to spend more money than you have.

In addition to using credit wisely, it is important to make sure that you pay your other bills (i.e. rent, mortgage and utilities) on time each month. Experts say that payment history determines about 35 percent of your credit score. As a result, having a history of prompt payment, along with responsible use of credit will cause your credit score to increase over time.

Although getting your credit score back to acceptable levels does not happen overnight, it is not as long as you may think. People that are financially responsible after their bankruptcies can rebuild their credit is as few as two years. Since this is a rather short period of time, it is foolish to use a fear of ruining credit as an excuse from seeking the bankruptcy relief that you need. An experienced bankruptcy attorney can explain the debt relief options available to you and recommend the best one for your situation.

Keywords: bankruptcy, rebuilding credit