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Rebuilding Your Credit After Bankruptcy


When you get a bankruptcy discharge, whether it’s for a Chapter 7 or Chapter 13 bankruptcy, you have a clean financial slate. After the bankruptcy, you may have sworn off credit cards forever, but that is NOT advised. You see, you need good credit to rent an apartment or house, to get an auto loan, to get a mortgage, and even to get competitive auto insurance rates.

If you fail to rebuild your credit or if you do nothing at all after going through bankruptcy, it’s going to impact your financial health. You see, rebuilding your credit after bankruptcy is critical and believe it or not, it isn’t difficult to do. In fact, debtors can achieve a credit score in the 700s within two or three years of discharge if they play their cards right.

But, how do they do it? It basically comes down to common sense and rebuilding credit after a Chapter 7 or Chapter 13 is almost identical to starting from scratch when you’re 18 and just starting adulthood.

Tips to Rebuild Your Credit

For starters, credit cards are not the enemy; they are your friend. However, you have to be smart. Shop them out, stay away from excessive fees and try to find cards without annual fees. When you do get two or three cards, don’t abuse them. Keep the balance below 30 percent each month, even better, keep it below 10 percent or pay it off in full every month.

Second, live within your means. If you spend too much, you’ll run out of money to pay for your basic living expenses like rent, gas, utilities, and your cellphone bill. If you don’t have enough money to pay for these necessities, your late payments will be reported on your credit and that will worsen your FICO score.

Save for a rainy day. Each time you get paid, deposit 10 percent of your paycheck into a savings account. By creating a cushion, you won’t have to turn to credit cards if you need new tires, or if you have to repair your car, if you have to get an emergency root canal, or if you have to pay for a speeding ticket. Get in the habit of building your emergency fund each time you get paid so you don’t have to resort to payday loans or credit cards.

Create a budget and stick to it! When you truly understand how much is coming in and how much is going out, you can gain control over your financial situation and start building your financial future. If you have a stable job, it may be time to consider meeting with a financial planner – a financial pro’s advice can be priceless at this stage in the game.

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