Rebuilding Credit After Bankruptcy
You completed your bankruptcy, what do you do now? Do you have concerns about rebuilding your credit? In this article, we will go over steps you can take to rebuild your credit after bankruptcy.
Steps to Rebuild Your Credit After Bankruptcy
Rebuilding your credit after bankruptcy will depend on your individual financial situation and goals. The following are steps to rebuilding your credit after bankruptcy.
- Obtain Your Credit Report
- Monitor Your Credit Score
- Create a Financial Plan
- Pay Off Debt
- Save Money/Create an Emergency Fund
- Avoid Unnecessary New Debt
What is a Credit Report?
A credit report contains the raw material used to calculate your credit score. Companies use information on credit reports to make decisions about granting credit.
Your credit report is a historical record of
- How/when you pay your bills.
- How much debt you have.
- How long you have been managing credit accounts.
Your credit report contains
- Personal Information
- All Credit Accounts
- Records of Credit Application Inquiries
- Public Records (such as civil or bankruptcy judgments)
How Do You Get Your Credit Report?
The Fair Credit Reporting Act entitles you to a free credit report every 12 months from the three major consumer reporting companies:
You can request a copy from AnnualCreditReport.com.
Examine your credit report carefully. Errors on your credit report negatively impact your credit score. Getting negative items removed from your credit report can quickly help your credit score.
- Review all three credit reports.
- Gather materials to dispute errors.
- Dispute credit report errors.
- Review the response.
How Long Does Bankruptcy Stay on Your Credit Report?
How long bankruptcy stays on your credit report depends on the type of bankruptcy you file:
- Chapter 7 bankruptcy remains on your credit report for 10 years from the date you filed.
- Chapter 13 bankruptcy stays on your credit report for seven years from the date filed.
After bankruptcy your credit score will take a significant hit. Your credit score is important because it affects your ability to get loans and the interest rates on those loans. Bankruptcy’s effect on your credit score depends on:
- what bankruptcy you filed (chapter 7 or 13) and
- what your score was before you filed.
Credit scores that were lower pre-bankruptcy tend to lose fewer points than credit scores that were significantly higher.
Below is the range of credit scores.
- Less than 580 Poor
- 580-669 Fair
- 670-739 Good
- 740-799 Very Good
- 800+ Exceptional
Calculating Credit Score
Credit scoring models calculate your credit score using many different pieces of credit data in your credit report. Credit scoring models group this data into the five categories listed below. The percentages reflect the importance of each category in determining your credit score. Each financial situation is unique and the importance of these categories may vary depending on your financial situation.
Payment History – 35%
Payment history is the largest factor used in determining your score. This includes on-time payments. Improve your score by making all payments on time.
Amounts owed – 30%
Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower. Using more than 30% of your available credit is a negative to creditors.
Length of Credit History – 15%
The length of credit history is the length of time you have had your accounts open. Assuming the accounts are in good standing, a longer established credit history results in a better score.
New Credit – 10%
Do not open a lot of accounts within a short amount of time. Too many accounts or inquiries can indicate increased risk, hurting your credit score.
Credit Mix – 10%
People with top credit scores carry a diverse portfolio of credit accounts such as a car loan, credit card, student loan, or mortgage. This does not mean you should go out and get all of these credit accounts. It is just one factor considered in creating your credit score.
You may not have declared bankruptcy yet, and are reading this article to learn what you should do, post-bankruptcy. If that’s the case, you can get even more information when you take advantage of our Las Vegas bankruptcy lawyers’ free consultation. Even with all of the strategies we outlined above, there’s something else to keep in mind. You can rebound more quickly from bankruptcy with an experienced bankruptcy lawyer helping you navigate the process. Get in touch with Anthem Injury Lawyers today and schedule your free consultation: (702) 857-6000.
Create a Financial Plan
Bankruptcy gives honest debtors who were unable to pay their debts a “fresh start.” If you received a bankruptcy discharge take advantage of your fresh start and create a financial plan. If bad habits got you into debt, then change those habits and avoid repeating the cycle.
A financial plan is a comprehensive statement of an individual’s long-term objectives for security and well-being. It contains a detailed savings and investing strategy for achieving those objectives.
Create a financial plan on your own or talk to a certified financial planner. To create your financial plan you need to understand your current financial state and future expectations.
Set Your Goals
When creating your financial plan, it is important that you set your goals. Your goals are your future expectations and will determine what steps you take to achieve your financial plan.
Goals can be short, intermediate, and long-term.
- Short term goals take under one year to achieve such as saving for a vacation or paying off a specific debt.
- Intermediate goals take a few years to accomplish. Examples include purchasing a vehicle, rebuilding your credit, or obtaining a degree or certificate.
- Long term goals are goals that take a longer time to accomplish. Long term goals typically require more planning and money to accomplish. Examples include saving for retirement and purchasing a home.
Chances are that if you are reading this article, one of your goals is to rebuild your credit. First, you should identify what rebuilding your credit means to you. Do you have a specific credit score you are aiming for? Next, identify steps you can take to rebuild your credit. Finally, pick a date to achieve your goal.
You can then break this goal into smaller goals. If you want to rebuild your credit, an example of a smaller goal would be to pay off a debt that bankruptcy did not discharge.
Pay Off Debt
Bankruptcy does not discharge all debts. Continuing to make timely payments on debts not discharged in bankruptcy can help you build credit. There are several federally protected debts that bankruptcy does not usually eliminate including:
- Child support
- Spousal support
- Most IRS taxes
- Student loans
- Court-ordered restitution
- Court judgments for injury or death as a result of a DUI
- Fraudulently incurred debts
Start Saving and Create an Emergency Fund
Saving money can help you avoid debt traps and build an emergency fund.
How to Start Saving Money
How or what you can save depends on your financial situation. Doing the following can help you start saving.
- Track your expenses.
- Create a budget.
- Live within your means.
- Reduce spending in all non-essential areas such as restaurant meals, cable television, and entertainment and leisure.
- In some situations you may need to get a second job or “side hustle” for additional income.
What is an Emergency Fund?
An emergency fund is a “stash of money set aside to cover the financial surprises life throws your way.” If you filed for bankruptcy, you most likely encountered one of life’s negative financial surprises. These emergencies include:
- Job loss
- Medical or dental emergency
- Unexpected home repairs
- Car troubles
- Unplanned travel expenses
In an ideal world, an emergency fund would cover six months of living expenses. If you just filed for bankruptcy, you may not be in a financial position to cover anything beyond your normal living expenses. Any amount set aside can help. Even $500 can help with a medical bill or car emergency. Save what you can.
Avoid Unnecessary New Debt
Rebuilding your credit does require debt. Avoid taking on debt until you have a plan to pay it off. Live within the budget you created and don’t rely on borrowing to pay for expenses.
Stay Credit Card Smart
Many individuals file for bankruptcy in part because of credit card debt. Credit cards can help rebuild credit, but only if you restrict credit card use to what you can afford now.
- Avoid getting multiple credit cards.
- If you want to start to rebuild your credit in a safe way you can obtain a secured credit card. When you open the account for a secured credit card your deposit equals your credit limit and backs the credit card. If you deposit $500 then your credit limit is that amount. If you fail to pay your bill, the issuer can pay the bill out of your deposit.
- Pay off your credit card balances every month.
- Use credit to make payments that you budget for with cash on hand.
Hire a Las Vegas Bankruptcy Lawyer
Award-winning Las Vegas Anthem Injury Lawyers are a team of experienced, dedicated bankruptcy lawyers and case managers based in Henderson, Nevada. We serve clients in Henderson, Las Vegas, North Las Vegas, Summerlin, and Clark County. With over 25 years of experience, Anthem Injury Lawyers specialize in bankruptcy law and personal injury claims. This experience will stand you in good stead as we are deeply knowledgeable about the bankruptcy process. Our Las Vegas bankruptcy lawyers provide the representation you need to declare and come through bankruptcy, so you can look towards a brighter financial future. Contact us today at (702) 857-6000 to make an appointment for a free consultation.