For individuals who are struggling with momentous amounts of debt, bankruptcy is a way to clean the slate (in a manner of speaking). However, that doesn’t mean there aren’t lasting consequences to bankruptcy that must be reckoned with, afterward. One of these consequences is that your credit will take a hit for a predetermined amount of time. Despite this fact, you can still make strides towards maintaining and healing your credit score. Here are some methods to help you get started…
Make a Nest Egg
After declaring bankruptcy, it’s important to set aside a small nest egg that you can use for a rainy day. The magic number that is often stated for an emergency fund is $1000. However, even having just a couple hundred bucks that you can use to cover you when funds get tight can be helpful. This lessens the need to get payday loans or use credit cards for those times, which can put further strain on your credit.
Create a Strict Payment Plan
Maintaining a strict budget is crucial when recovering your credit after bankruptcy. You need to make your finances work for you, and fit your specific lifestyle. A major part of this budget needs to account for paying back debts that you still owe that have not been forgiven in your bankruptcy, or other debts that you accrue after bankruptcy. There are plenty of tools out there that can help you hasten your debt repayment and keep to a payment schedule, including Unbury.Me, Mint.com, Debt Snowball, and LearnVest.
Find Secured Forms of Credit
To improve your credit, you need to use credit. This can be difficult after bankruptcy, as lenders will view you as a high-risk loan. Because of this, opening a line of credit will require you to either have a co-signer or get a secured form of credit. Secured forms of credit typically allow you to borrow a loan against a deposit of money that you cannot access during the repayment period.
Here are some types of low-risk loans that lenders are likely to consider for a post-bankruptcy borrower:
- Secured loans
- Secured credit cards
- Co-signed loans
- Co-signed credit cards
Wait It Out
Lastly, remember that the effect that bankruptcy has on your credit isn’t permanent. Chapter 13 bankruptcy will no longer show up on your credit score after 7 years. Chapter 7 will disappear in 10 years. While you should work on building your credit in the meantime, it’s important to keep in mind that the slate truly can be wiped clean with a little time.