Has your Credit Score taken a bad hit on account of bankruptcy? Here are a couple of methods that you can employ to rebuild your credit reputation post-bankruptcy.
While filing for bankruptcy may seem a good idea if you’re unable to pay off your debt, it may deal a serious blow to your Credit Score.
Your payment history and outstanding dues are two of the most crucial factors that affect your Credit Score. Apart from these, bankruptcy is another factor that can pull down your score!
Additional Reading: How To Track Your Credit Score Like A Pro
By declaring bankruptcy, you make a legal statement that you are unable to fulfill your loan responsibilities to creditors. It can be a result of a huge loss suffered by your business, a sudden loss of employment, or an accident that leaves you disabled.
Additional Reading: Warning Signs That You’re Headed Towards Bankruptcy
Bankruptcy can make your Credit Score plummet. According to the major scoring model FICO, if a person with a Credit Score of 680 files for bankruptcy, he can lose 130-150 points, while a person with a score of 780 can lose 220-240 points. In addition, bankruptcy remains on your credit report for up to 10 years, thereby ruining your chances of securing further credit.
If you’re bogged down by the impending damage that bankruptcy can do to your score, this article is for you. We’ve come up with these foolproof ways to rebuild your Credit Score after bankruptcy. Let’s take a look at them.
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Checking that bankruptcy was filed correctly
After filing for bankruptcy, pull up your credit report and check if debts that were part of the bankruptcy are marked as discharged.
Obtain your credit report annually and check if the information recorded is accurate. Errors and inconsistencies in your report must be fixed without further ado.
Additional Reading: How To Fix An Error In Your Credit Report
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Starting over with a fresh line of credit
Not working at improving your score after bankruptcy can lead to financial paralysis. Start over with a Secured Credit Card! Taken against a Fixed Deposit, Secured Credit Cards are well-suited for anyone looking forward to building a good Credit Score.
The interest on these cards is lower than that charged on regular Credit Cards. This helps the cardholder build his or her Credit Score through proper card usage and timely payment of bills.
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Making timely payments
Your payment history contributes a whopping 35% when determining your Credit Score.
You can instruct the bank to set up timely payments from your account so that there is no scope for you to default a payment.
Being mindful of the due dates also helps you avoid late payment fees by keeping you on track. This is a sure-fire way to build a good score.
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Keeping your lines of credit open
Yes, being bankrupt may make it seem like a good idea to stay away from Credit Cards, but this is actually detrimental to your score. When you close a Credit Card, you reduce the credit available to you. This further decreases your Credit Score.
Additional Reading: 3 New Year’s Resolutions To Raise Your Credit Score In 2019
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Adhering to your credit limit
Remember to stay well within your credit limits. Begin by keeping your spending in check. Budgeting is a great way to maintain finances well within your credit limit.
Have you heard of credit utilization? It is the ratio of your outstanding Credit Card dues to your Credit Card limit. This helps you measure the amount of credit you are using.
Start by maintaining just 30% utilization of your Credit Card limit. Not only will this showcase good money management skills, but will also help you pay your dues on time.
Additional Reading: What Can Hurt Your Credit Score?
Remember, your Credit Score is a mark of your financial health. It takes a lifetime to build but can be injured by a single slipup. After the 10 year mark, check if there is still a mention of the bankruptcy in your credit report. These tips, when practiced over time, will help you avoid the pitfall of bankruptcy again.
Not sure where you stand in terms of your credit-worthiness? Click on the button below to check your Experian Credit Score for FREE.