You might feel that your "financial life" is over after filing bankruptcy, but there is light at the end of the tunnel. Yes, bankruptcy does have long-lasting negative effects on your credit score. It does mark you as a high risk borrower with most lenders. But the good news is you can bounce back after a bankruptcy by being diligent with future credit and spending habits.
Bankruptcy and Credit Reports
Bankruptcy usually remains on a credit report for about 10 years. It will then be erased by reporting agencies so you can start all over. Fortunately, you don't have to wait 10 years to start rebuilding your credit. In fact, you should start immediately after your bankruptcy case has been closed. Even if a bankruptcy is still showing on your credit report, you can potentially build an average-to-high credit score.
Secured Credit Card
One way to begin rebuilding credit is to apply for secured credit card. These are secured by funds you provide, but some are reported to the credit bureaus as if they were normal credit cards. As you use the secured credit card and maintain your balance, your credit score can be boosted despite having a bankruptcy on your credit history. When shopping for a secured credit card, be sure the card issuer will report it as normal to help boost your score; some issuers do not report, or will attach a warning that it is "secured." Also, beware of high annual fees and/or application fees - read all the fine print before applying!
Examine Your Credit Report
Once you obtain a copy of your credit report, examine it carefully for any accounts showing "open" or "unpaid" that should have been taken care of under the bankruptcy. If these are still showing open on your credit report, you should contact the reporting bureaus immediately and insist that these be corrected. The report should be showing that the account is included in the bankruptcy.
Pay Off Other Bills
If you have outstanding accounts that were not covered for some reason, pay these off as soon as possible and ask the creditor to report your paid balance to the credit bureaus. A collection or judgment may appear on your credit up to seven years; however, showing it has been paid in full will boost your credit score.
It's crucial that you pay all bills on time....utilities, rent, furniture bill, and whatever else you owe month to month. These can be reported to the credit bureau if paid too late as "slow pay" bills. Also, if you do pay on time, you can use written letters from each creditor to help establish credit with others if needed in the future. A lender might be reluctant to give you a loan if you have a previous bankruptcy, but letters showing trustworthiness from other creditors might convince them that your credit woes are behind you.
Learn from Past Mistakes
A bankruptcy can be a turning point in your life as well as a learning experience. Use it as a fresh start to find out what you did wrong in the past that led to the bankruptcy and how you can make the future better. If your overspending led to the bankruptcy, then take a financial help class on being more frugal. If you were overwhelmed with medical bills, maybe you can find a job with medical insurance or shop for a low cost policy you can afford. If you became unemployed and did not have enough savings to cover living expenses, then perhaps you can start a savings plan to build up an emergency fund of several thousand dollars. A good rule of thumb is to save enough for two to three months of living expenses. This is a smart step for everyone in the unstable economy we're dealing with today.
Don't allow bankruptcy to keep you down, but use it as a stepping stone to better your future in terms of finances and credit.
