Bankruptcy can be a very difficult experience. Many people feel a sense of guilt or shame when they admit that they can’t handle the debts that have accumulated over the years. Instead of wasting time thinking about what you can’t change from the past, focus on taking the right steps after bankruptcy.
Focusing on what is in your control will help you rebuild a strong credit score as quickly as possible. Follow the steps outlined below to watch your credit score slowly rise from the ashes of bankruptcy.
Stick to Bill Deadlines
One of the first ways you build credit as a young adult is by paying your bills on time. This is also true for older homeowners who are trying to bounce back after bankruptcy. Pay each bill early or on time to start adding a few points each quarter to your overall credit score.
One late payment will have a serious effect when your score is already very low. If you have trouble keeping track of your mortgage and utility bills, mark the dates on a calendar next to your bed or use a smart phone app to send yourself regular reminders.
Focus on building a savings account for emergencies. Illness or job loss shouldn’t keep you from paying your bills. Taking out emergency loans is much harder after a bankruptcy. An emergency fund can keep you from relying on high interest payday loans that can sink your credit even further. If there are any debts that were reaffirmed during your bankruptcy, pay them off as quickly as possible while building up your savings.
Start Small With Additional Borrowing
A very small unsecured loan or high interest credit card is the next step in rehabilitating your credit. While most lenders will be reluctant to hand you $10,000 after bankruptcy, you should be able to find a $500 loan or a card with a low spending limit. Make small purchases on the credit card and repay them within the same month.
Demonstrating that you can handle credit responsibly will encourage the credit tracking bureaus to start raising your score. One minor loan every three months creates quite a boost if you can pay it off within just a few weeks after borrowing.
Check that your lender reports your information to the credit bureaus. Many unsecured lenders don’t bother sending in your name and information, especially on low amounts. Work with a lender that will report each month on your timely payments and low balance.
Cut Your Costs
Most people go into bankruptcy because of sudden and unexpected costs. Bills for medical treatment or a lawsuit can cause your normal lifestyle to become completely unsustainable. However, these problems can always reappear after a bankruptcy. Adjust your lifestyle to your income and build as much savings as you can.
A strong foundation will help you avoid a second bankruptcy if another unexpected expense hits you while you are struggling to recover from the first. Downsizing your home, swapping an expensive car for an affordable used model or cutting your entertainment budget could help you create a protective barrier of cash for emergencies.