7 Ways to Rebuild Your Credit Score After Bankruptcy

Many people with poor credit histories worry about being able to get their financial affairs in order. The good news is that rebuilding your credit after you have filed for bankruptcy is a fairly easy process in many countries.

The first thing you will need to do is re-establish to the creditors in the marketplace that you are a good credit risk. If you live in Canada, then you can start repairing your credit quite quickly after you have finalized your bankruptcy. Once your bankruptcy is removed from your credit history, which may take up to 7 years in some cases, you can work on improving your credit score.

Today we will discuss 7 steps that you can take in order to rebuild your credit score after you have finalized your bankruptcy proceedings.

What is a bankruptcy discharge?

Bankruptcy discharge serves as the final step in the bankruptcy process. If you are a bankrupt individual, then you will be absolved from the debts that you owed when you originally filed. Most people file for bankruptcy in the hopes that they will obtain a full discharge. A person who is insolvent may find debt relief in accordance with the Bankruptcy and Insolvency Act of Canada.

It should also be noted that there will be an immediate stay that prevents creditors from trying to get their money back directly from you. When you file for bankruptcy, you will no longer have to worry about threatening or harassing calls from collection agencies.

However, your debts will still technically exist until you receive your official discharge. There are many requirements that you will need to meet in order to receive a full discharge. If you meet all of your requirements, then your bankruptcy trustee will file your certificate of discharge on your behalf.

How to Rebuild Credit After a Bankruptcy

There are 7 tips that you can follow in order to rebuild your credit after a bankruptcy. First, it is important that you pay all of your bills in a timely manner. Place a reminder on your calendar or sign up for auto-pay so that you don’t have to worry about missing a payment by accident.

You should avoid getting into debt in the first place. Try and pay with cash whenever possible and avoid impulse purchases. Go over your budget in order to determine what you can reasonably afford to purchase per month.

Getting a secured credit card helps. Companies will actually report the data that they receive to numerous credit bureaus. Use your secured credit card to make a few planned purchases a month. Then, wait for the bill to arrive and pay it quickly in order to rebuild your credit.

You should limit credit applications, and wait at least 6 months between applications. If you apply for too much credit, or apply for credit often, then your lenders will take notice. For instance, if you apply for 4 credit cards, then you may be denied when you try to take out a loan for a car or a mortgage.

It is very important that you save for unexpected expenses. It is also paramount that you live within a budget that is realistic. If you determine that you are spending more than you earn, then go over your books and make the necessary spending cuts.

You should avoid credit that you cannot afford. If you are offered a loan that you know you will be unable to pay, then turn it down. Payday loans should also be avoided in order to pay bills, as they will not improve your credit rating.

As for your bank account, you should use it in a consistent and responsible manner. You should do everything in your power to avoid NSF fees as well as account overdraft. Overdrafting on your account is a telltale sign that you are in some sort of fiduciary distress.

How soon will my credit score improve after bankruptcy?

You can begin working on improving your credit score 10 to 18 months after your bankruptcy has been finalized. Your credit score will be directly impacted by your payment history, credit reporting, and your timely payments. Your bankruptcy details will also be held on file for a 7 to 10-year period.

Establishing a solid credit score and history will take time. You will have to work on improving your score every year by spending, borrowing, and repaying in a responsible manner. It is important to note that even though your bankruptcy will be attached to your credit history for a 7 to 10-year period, you can still work on improving your credit in the meantime.

Some people who have gone bankrupt will be able to significantly boost their credit score after just a few years. If you are having issues with creating a monthly budget or paying your bills on time, then you should talk to a financial advisor or planner.

There is Hope

A record of your bankruptcy will be kept on file for a 7 to 10-year period if you have filed for bankruptcy for the first time. If you file for a second time, then your subsequent bankruptcy may remain on record for a longer period.

Creating a good credit history is not easy, but it is well worth the effort in the end. Work on slowly rebuilding your credit score over the next few years by making smart financial decisions, such as only buying what you can afford.

Pay your bills on time, and avoid taking on too much credit at once. Failure to do so will have a negative impact on your credit score. A poor credit rating will increase the likelihood that your loan application will get rejected.

People with poor credit scores will also be required to pay higher interest rates on the loans that they qualify for in order to offset some of the risk. Even insurers will assess your credit score, and premiums for homeowners and auto coverage will be directly impacted as well.