Rebuilding Credit After Bankruptcy

No one enjoys declaring bankruptcy, but sometimes it is unavoidable. The hard part is rebuilding business credit after bankruptcy is filed. Running a business without a line of credit is nearly impossible, but vendors are likely to feel that a bankruptcy makes a person or business a poor risk. However, it is possible to slowly rebuild business credit and eventually obtain new loans. Simply apply the following steps.

Rebuilding

The first step towards rebuilding your credit is to always pay your bills on time. Avoid making any late payments on any of your bills, even the ones that you do not think report late payments to the credit bureaus. This step is not negotiable. The ability to pay your bills indicates that your financial troubles are in the past. If you make late payments creditors will believe that bankruptcy did not put an end to your financial difficulties for you.

Improve your credit score with a secure credit card. While it might be tempting to avoid credit cards altogether, they are essential to improving your credit. Naturally, it is difficult to obtain most credit cards after declaring bankruptcy. However, a secure credit card, which is a credit card secured by an initial deposit, is easier to qualify for when your credit is less than perfect. Secured credit cards operate like other credit cards. They have interest and monthly payments, but the deposit protects the bank in case you default.

Secure credit cards generally do have higher interest rates than unsecure cards, so shop around before signing up for one. Also make sure that the bank reports secure credit cards to the major credit bureaus. Banks have different policies on reporting secure credit cards; do not just assume that your activity will be reported. If the credit card is not reported it will do little to boost your credit score. However, by carefully using a secure credit card, it is possible to build credibility with different vendors. Over time, responsibly using a secure credit card may lead to offers for unsecure credit cards.

Credit Reports

Looking at your credit report after filing for bankruptcy may be somewhat depressing since the bankruptcy is displayed for 10 years, but it must be done. Everyone should monitor his or her credit report, regardless of personal feelings. Many people who declared bankruptcy face unexpected problems with their credit reports because financial institutions do not update reports on the debts that are cancelled by bankruptcy. Check to make sure that everything on your credit report is up to date. Banks and other lenders are legally obligated to update your records to the credit bureaus after a bankruptcy. Leaving cancelled debt on your credit reports counts against you.

Besides removing cancelled debt, monitoring your credit report makes perfect sense. It will help you prevent or catch identity theft. You can also spot and correct any inaccurate reports. There are three major credit bureaus, and everyone is entitled to a free report from each one every year. The three bureaus are TransUnion, Equifax and Experian. Because these bureaus do not compare information, you should check each one individually.

Loans

It is now possible to obtain a loan before a bankruptcy is removed from your credit history. However, do not expect to get a loan within a year of declaring bankruptcy. Take the first year to build credibility by paying bills on time and using a secure credit card.

You might be able to get a bank loan after declaring bankruptcy, but it will probably come at a price. These loans usually have higher interest rates. Banks also prefer that collateral or cosigners secure high-risk loans. This is often the only way to get a loan until your credit is fully repaired. You must determine whether or not want to take the loan on these terms. However, you might not have nine years to wait for a better credit score.

Rebuilding credit is not easy. It is a long and lengthy process. The good news is that it is much easier for people or businesses that declared bankruptcy to obtain credit now than it used to be. Be patient and responsible. Do not max out the credit that you do get and slowly pay back the minimum payments. High balances count against you. If paying your bills early means that you will pay them on time then pay them early. However, early payments are not reported and do not reflect your credit score. Always pay your bills on time. This is something that all people can do to increase their credit scores, regardless of their current financial situation.

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