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Rebuilding Your Credit Rating after Bankruptcy
Although bankruptcy can and will deal a devastating
blow to your credit profile, its effects don't have to be long-lasting.
While the bankruptcy itself can legally remain on your report for up to
ten years, you can begin rebuilding your credit rating the day that
your case closes. Here are some strategies that will help you to
quickly rebuild credit after bankruptcy.
The first thing that you'll want to do is to use
your bankruptcy as a wake-up call to find out what's wrong in your
financial life. Identify the problem areas; do some soul-searching. If
your problem was overspending, create and maintain a budget. If a job loss or other setback wiped you out, get started on establishing an emergency fund.
While you're doing this, get a copy of your credit report
and review it carefully. Quite often a credit file may continue to show
several accounts being open and overdue when, in fact, they were closed
and the obligations discharged as part of the bankruptcy. If there are
other mistakes on your report, correct those as well. Your credit score
is based on information in your file, and errors can seriously affect
your rating.
In order to improve your credit, you'll have to get and use -- you
guessed it -- some credit. You'll need two types in order to raise your
score quickly:
You may be able to qualify for a high-rate mortgage in as little as six months after a bankruptcy; however, you'll probably be better off waiting until you can qualify for an FHA loan, which is typically only about two years after your case has closed, as long as you've maintained good credit habits since then. Auto loans can also help to rebuild your credit. Just remember that your interest rate will likely be quite high; after making timely payments for a year or so, you'll usually be able to refinance into a lower rate.
Adopt responsible credit habits by using the strategies outlined above. Make sure that all your payments are made on time. Before you know it your credit score will be back up where you want it to be. It can be done, and you can do it.
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