If you have ever played the game ‘Monopoly’, you will know how disappointing it is to go bankrupt and lose the game. In real life, the situation is much worse. If you are struggling to repay your loans or your credit card bills, then you will need to file for bankruptcy. But there is a light at the end of the tunnel because there are ways you can go about rebuilding credit after bankruptcy to increase your financial standing. This blog will give you some tips on how to get back credit after bankruptcy.
Steps to Rebuild Credit after Bankruptcy
Filing for bankruptcy marks the beginning of a new chapter in your life, and it may be a difficult one. However, you do not have to worry too much because there are some steps you can take to get back on your feet. Here are some suggestions you can use to rebuild your credit after bankruptcy:
- Maintain Payments for Pending Debt
The very first thing you need to do once you file for bankruptcy is to check your financial standing and determine which accounts were not closed. Even though most of your debt will be canceled there may be some payments that are still pending. These payments are generally student loans or alimony payments. The best and most efficient way to start rebuilding credit after bankruptcy is to pay off these balances. Timely payments will lower your debt-to-income ratio and in turn, boost your credit.
- Keep a Steady Job
Indeed, switching jobs does not affect your credit score, but it can be an important factor for lenders. The most important thing for banks and credit agencies is to check if you have a reliable and steady source of income. Holding a regular job is a crucial factor when restoring credit after bankruptcy. You make it clear to lenders that there are more chances that you will repay the loan. Whenever an agency or a lender reviews your loan application, they will check your job history in the past two years along with your credit score.
- Continue Applying for New Credit
As mentioned earlier, filing for bankruptcy is a challenging time because it will be harder to get new credit. Once an individual files for Chapter 13 or Chapter 7 bankruptcy, the interest rates are likely to increase, and loans will become harder to approve. However, even if it takes time, applying for new credit will go a long way in rebuilding credit after bankruptcy. Once you have new credit, you can begin to build up a positive history of on-time payments to show that you are a responsible lender. One trick is to apply for secured credit cards since they require a cash security deposit as opposed to unsecured credit cards.
- Try to get a Cosigner
A cosigner is an individual who signs a loan application or a credit card application to indicate that they will guarantee payment if the primary signer cannot do so. Engaging with a cosigner on your rental agreement or load application will significantly boost your chances of approval even after you file for bankruptcy. You can get a cosigner for different applications, including mortgages and auto loans. Thanks to the legal, financial backing of a cosigner, there are better chances of restoring credit after bankruptcy.
- Avoid Applying for New Credit
One common mistake that many people make is to apply for a new credit card even while they are not clear about how to rebuild credit after bankruptcy. Keep in mind that the more new credit applications you sign up for, the more inquires will be made into your credit report. If your credit report indicates that you applied for multiple new credit cards, and you were denied, it will indicate risky behavior and may discourage lenders. When applying for a new credit card after bankruptcy, you will need to keep track of the issuer’s underwriting standards.
- Pay with New Credit Cards
If you do manage to get a good deal on a credit card, you can make the most of it by using it to make timely payments. When you are rebuilding credit after bankruptcy, you need to do your best to create a positive payment history so that you get a better credit score. You should try and set up autopay whenever possible or keep paying off your card multiple times a month if and when you can afford it. Another trick is to set up regular reminders to make payments so that it does not show up on your credit report.
- Keep Checking with the Credit Bureaus
If you are wondering how to rebuild credit after bankruptcy, you should know that keeping your credit report up-to-date is essential. Since creditors and lenders do not always report credit activity to the bureaus, you will need to follow up with them. Keeping the credit bureaus appraised of your positive activity and your credit history will raise your credit score. Most people also report their non-credit related payments such as house rent, utility bills, or cell phone expenses. While most credit scoring models do not include these payments, it will act as a record of positive payments in your credit history.