Bankruptcy is a major financial step that can help you get away from overwhelming debt. It can seriously impact your credit, however. After your bankruptcy is final, it’s important to take steps to repair your credit and build strong financial habits.
How Bankruptcy Affects Your Credit
A number of factors impact your credit score, including your debt-to-credit ratio, account length, collections accounts, and late payments. Declaring bankruptcy may immediately cause a significant decrease in your score, but avoid panicking. There are many ways you can begin improving your credit and preparing for a bright financial future.
The 2 Types of Credit You Need After Bankruptcy
There are two types of credit you should apply for after bankruptcy. Having both can help you create a diverse credit report. Installment credit, which includes items like mortgage payments, car loans, and student loans, requires monthly payments for a set period of time. It’s important to build a history of on-time payments on your installment debts. A loan for a pre-owned car or federal student loan can help you establish a consistent payment history.
Revolving credit includes credit cards. As you make payments, you free up your available credit for spending. With revolving credit, you want to pay on time and maintain an appropriate debt-to-credit ratio. Typically, credit bureaus prefer that consumers use less than 30% of their available credit. Maintaining a revolving credit above that 30% mark may negatively impact your score.
Get a Credit Card After Bankruptcy
For many people, a credit card is the easiest way to begin building credit after bankruptcy in Colorado Springs. Compared to loans for large items like houses and cars, credit cards are often available with lower limits to minimize risk. You are free to apply for any cards you wish, but your approval odds may be lower than they would be for preapproved cards. There are quite a few cards that are specifically designed for people with a recent bankruptcy. They often have low credit limits and high interest rates. If this is the route you decide to go, use it wisely and avoid carrying a high.
Monitor Your Credit Report After a Bankruptcy
It’s crucial to keep a watchful eye on your credit report after bankruptcy. You can pull one free report through each of the three credit bureaus annually. When you check it the first time after bankruptcy, make sure there are no accounts listed that should have been discharged. As you continue to build you credit, keep an eye out for erroneous collections accounts and verify that all reported information is correct. If there are any accounts that aren’t yours or information has been reported incorrectly, report it promptly to the bureau for correction.
Wipe the Slate Clean and Find Out If Bankruptcy Can Help You Start Fresh
For many people who have gotten in over their heads, bankruptcy offers the chance to start anew. If you’re unsure if bankruptcy is the right choice for you, or you’re curious about different filing options, contact Kinnaird Law by phone for a free case review and a discussion about your options.