Many people buy into the misconception that filing bankruptcy ruins a person's credit forever. Fear of never having good credit again is what keeps a lot of people from filing bankruptcy, which ends up damaging their credit more than bankruptcy would. They fall further behind in paying bills, amassing a negative payment history and late fees and penalties. While a person's credit score will take a hit in the short term after filing bankruptcy, with some dedication a person can rebuild good credit.
Education about credit
Immediately after the bankruptcy debt discharge, a person should obtain a copy of his or her credit report from each of the three major credit reporting bureaus and review them for inaccuracies. Debts that were discharged should no longer be listed on the credit reports, and if they are still on the reports they may be lowering a person's credit score.
A person should continue to monitor his or her credit reports regularly, to make sure that there are no errors while rebuilding credit scores.
Secured credit cards
While people who have just filed bankruptcy may not be able to obtain credit on favorable terms immediately after filing bankruptcy, they can begin the process of rebuilding credit by opening secured credit cards. These cards do not require credit checks, as people give the banks or credit unions that issue these cards an amount of money equal to the credit limit on the card to hold in the event that a person does not pay his or her credit card bill.
People should use caution when selecting secured credit cards, however. People need to make sure that the institution issuing the card reports payment activity to credit reporting bureaus so that positive payment history will help improve their credit score. People should also avoid cards that come with stiff opening fees.
Unsecured credit cards
After about 12 to 24 months, the bank or credit union that issued the secured card may be willing to give the cardholder an unsecured credit card with a reasonable interest rate. People can use unsecured cards to build up positive payment history, similar to the way that they used secured credit cards. Some believe that carrying a balance on a credit card improves credit, but regularly using a credit card and paying off the balance monthly improves credit scores faster.
It is important that people do not carry balances for too long on their credit cards, since overwhelming credit card debt is what led many people to file bankruptcy in the first place.
Timely bill payments
Not all debts are discharged in bankruptcy, so some people will have monthly debt payments that remain after their bankruptcy is complete. Making these payments on time is crucial to improving a credit score. In addition, paying bills such as rent, utilities and child support can help demonstrate to creditors that a person is a safe credit risk.
Fears about bankruptcy's impact on credit should not prevent people from investigating whether bankruptcy is the right solution for their financial difficulties. If you have questions about debt relief options, speak with a seasoned bankruptcy attorney about your specific concerns.