If you are contemplating bankruptcy, don’t despair that your credit will be wrecked after filing for a Chapter 7 or Chapter 13. If you do file for bankruptcy, you can take comfort in knowing that you can get your credit into shape if you make an effort to be frugal and are careful about your spending habits in the future.
As a Fresno bankruptcy attorney with over 13 years of experience, I am providing some credit rebuilding tips that can make a huge difference in your credit score long before the bankruptcy falls off your credit.
- Open a checking and savings account if you don’t already have one.
- Once you have put aside around $500, get a secured credit card. Secured cards function like debit cards because you deposit the money beforehand, but with secured cards your payments are reported to all three major credit bureaus, which help pump up your credit score.
- After you’ve established on-time payments with your secured card, get a gas or retail credit card. I suggest that you try and get a gas card, this way you won’t be tempted to go on a shopping spree. Gas cards are a good idea because gasoline is a necessary expense and you won’t be tempted to splurge on this type of card.
- Obtain a credit card online. There are many competitive offers, especially with banks such as Capital One. Just be aware of upfront fees such as “application fees,” and avoid such offers.
- Pay your balances off each month. The credit bureaus want to see that you’re capable of paying off the balance as often as necessary. Also, only buy what you can afford at the end of the month.
- Pay all of your bills on time – this cannot be stressed enough!
- Obtain copies of your credit report from Equifax, Experience, and TransUnion. You can obtain one credit report a year for free from each bureau. If you find an error, dispute incorrect information on your credit reports.
- Budget for essentials. Figure out exactly what you need each month for housing, food, utilities, insurance, gasoline, your cell phone, Internet, transportation and medical expenses. Once you figure out your budget, only live within your means.
- Build a cushion in savings. If possible, try to set aside at least 10% of your paycheck towards savings. This way, if a dental emergency or emergency car repairs arise, you won’t have to rely on credit cards to pay your expenses. While financial experts recommend having at least 6 months of expenses in savings, for now aim to put aside at least $500 to $1,000.
Rebuilding Your Financial Health
Rebuilding your credit is akin to building good credit from scratch. By implementing these sound financial strategies, even as early as when you file for bankruptcy, you can be on the fast track to a credit score in the 700s before you know it. The concept that your credit will be ruined for ten years after a bankruptcy is a myth. When you use good judgment and make financially savvy choices, you can rebuild your credit after a bankruptcy within a few short years!