How to Improve Your Credit Score after Bankruptcy
Filing bankruptcy is one of the hardest financial decisions most people will ever make. The effects of a bankruptcy are far reaching and long lasting to be sure, but with time and patience, and a little good advice, you can recover.
Soon after you have filed bankruptcy you may be tempted to hide for a while and lick your financial and emotional wounds. Don't. As soon as possible after you have filed your bankruptcy and it has been accepted by the court you should apply for at least three credit cards, a secured loan, and a minor card such a gas card or department store card. The reason for this is that you want to start building your credit again as soon as possible after the bankruptcy and establishing new credit will help you to begin this process.
The next item on your agenda is to use your credit cards. "But wait", you may be thinking, "isn't spending what landed me in bankruptcy court in the first place?" Possibly, however, you have learned a lot since then and this time you will spend wisely and use credit even more so. By using your credit cards for things you would pay cash for you are establishing new and better credit habits. By paying off the balance you just created IMMEDIATELY you are building a new and more favorable payment history.
For instance, suppose you are going to lunch with your friends on Friday and have budgeted $25 for the date. Use the credit card at the restaurant and when you return home that evening or the next day at the latest, pay off that balance with the money that you would have used anyway. Lenders have a tendency to look at more recent financial activities and seeing responsible use and prompt payment will reflect well on your record. The reason for applying for different types of credit is that 10% of your FICO score is based on having a variety of credit types.
The very most important thing you can do at this point in your financial life is to PAY ON TIME. Never be late on your payments after a bankruptcy. Not even one day. 35% of your credit score is based on how promptly you pay your debts and this will positively or negatively affect your credit quicker than anything else. Additionally, do not be tempted to pay the minimum balances. Your credit will likely cost you far more after a bankruptcy so carrying a balance is poor money management. Paying off your balances, or paying them down drastically every month shows that you have changed your spending and credit habits for the better.
Remember that the point of rebuilding your credit is not to fall back into monumental debt; it is to establish a more positive financial outlook. You will want to try never to exceed 10% of your available credit limit, and under no circumstances should you exceed 30%.
You can rebuild your credit after bankruptcy. It just takes time and patience, and a little good advice.