For the most part, filing bankruptcy is a bit of a 10-year financial prison sentence. During that time, an individual's credit score would carry with it a big black mark that would serve to warn potential lenders, landlords, and employers away for a while. As bad and burdensome as that may seem, the reality is quite a bit different. The question someone in this position might ask is, "can I fix my credit score after a bankruptcy?" The truth is there are things people can start doing right away to fix their credit score. When they get to the end of the so-called 10-year waiting period, there are more ways for them to start rebuilding their credit score so they will eventually have the financial freedom they need. How would someone go about fixing your Credit Score?
Answer: Making all of the right financial moves while in bankruptcy will start to fix a credit score
Bankruptcy is not really the end of a person's financial world. In fact, people in this position might want to think of it as a new start. They have succeeded in removing troublesome debt and in time, they will be judged on their current actions, not the actions of the past.
While in bankruptcy, a credit score will take that initial big hit when the bankruptcy trustee reports the bankruptcy to the credit bureaus. At that point, the damage is done. From that point forward, the individual can start making all the right moves, moves that will immediately start their credit score moving up. First of all, there is a good chance some of their debt will survive a Chapter 7 filing. If they are allowed to keep certain assets such as their car and primary residence, their debt obligations would remain. That is a good thing. If they dedicate themselves to making all remaining debt payments on time into the future, their credit score will immediately start showing some improvement. Another way someone can immediately start rebuilding their credit is by securing a secured credit card. While they would have to offer up cash collateral to get the card, the payment process works the same as a conventional credit card. After using the card, they would simply need to make payments. If they make their payments on time, their credit score will again start to improve.
By the way, folks in bankruptcy should not be surprised If right after their bankruptcy is discharged, a few car dealerships start sending them credit offers for a new car. Dealership motivation comes from two factors. First, they don't have to worry about the individual filing bankruptcy against the loan. Second, the terms would be very dealership-friendly. If someone buys a car, gets a loan, and makes their car payments on time, their credit score will improve.
After clearing bankruptcy, everyone gets every reasonable chance to reposition themselves as a creditworthy individual. They will likely get normal credit card offers and be able to apply for secured loans again. However, there will still be work that they still need to do to avoid getting future loans with poor terms. They would need to keep improving their credit score to get better terms.
To do that, there are two things people in this position should do. First, avoid credit card debt. In all likelihood, it was trying to live above their means with credit cards that got them in trouble. Learning to budget and live within their means will help them stay financially stable. The other thing they need to do is stay diligent about paying all of their bills on time every time. That includes cell phone bills and utilities. Derogatory credit comments will always serve to hold a person's credit score down.
The above commentary was made in an effort to give people in bankruptcy hope for their financial future. The information is general in nature. For more information, the following resources could be useful:
- Experian - Experian is one of the aforementioned credit reporting bureaus. They have a thorough understanding of how credit scores are calculated, and what people can do to improve their credit score over time. This article offers meaningful advice on how people can manage their credit score before, during, and after filing bankruptcy. Everything is geared towards rebuilding credit.
- Debt.org - Debt.org is an organization devoted to helping people understand debt and how to manage their way through debt problems. This article discusses ways bankruptcy filers can ease back into the credit market with a true understanding of how their credit score works.
- Nerd Wallet - For over 11 years, employees and management at NerdWallet have been providing consumers with information and advice about managing debt and investing. The website offers reviews and comparisons on a variety of financial topics, including credit cards, banking, investing, loans, and insurance. This NerdWallet article takes the reader through a step by step process for rebuilding credit during and after bankruptcy.