4 Steps To Take To Rebuild Your Credit For a Home After Bankruptcy

Once you’ve got a bankruptcy discharge, you may be ready to purchase a home. The purpose of this article is to share how you can rebuild your credit to purchase a home after bankruptcy.

Accessing different credit facilities after bankruptcy has stipulated time-frames. For example, if you’re willing to get a house after filing for bankruptcy or get a general loan after bankruptcy, then it’s imperative that you’re willing to wait for the stipulated time frame. These stringent requirements are hardly present when you’re renting an apartment, but you may still encounter them in some instances.

It’s easy to start rebuilding your credit immediately after creditors are willing to borrow you again.

As you keep reading this article, you’ll learn the following:

  • How your credit report and credit score looks when you receive a bankruptcy discharge.
  • Some new credit opportunities that are available for rebuilding your credit after filing a bankruptcy case
  • Other common credit opportunities for rebuilding your credit score after a bankruptcy discharge
  • Reveal some important tools that can help to build your credit score
  • Share some success stories of people that have rebuilt their credit scores after getting a bankruptcy discharge
  • Manage your finance after bankruptcy

1. How your credit report and credit score looks when you receive a bankruptcy discharge

It’s best that you’re adequately knowledgeable about how debt will affect both your credit score and your credit report. The credit report contains information about your bankruptcy filing, while your credit score will change:

Your credit report after bankruptcy

Research conducted by the Public Interest Research Group indicated that about 29% of credit reports have some form of error or the other. As such, it’s best to check through your credit report after filing for a bankruptcy discharge. Checking your credit report is pretty easy as you can get a copy of your credit report by visiting the website of the three most prominent credit bureaus: TransUnion, Experian, and Equifax. Each of them will issue you a free copy every 12 months. It’s in your best interest to go through the details of your credit report yearly, as that’ll assist you to correct specific errors.

 Your credit score after bankruptcy 

Although it’s true that bankruptcy significantly reduces your credit score, the reduction is only temporary. You should know that bankruptcy has its immediate effect, and you should find ways to embrace those effects and create an environment where those effects will be minimal. While it’s easy to use my debt settlement credit score impact simulator to estimate the impact of a debt settlement on a credit score, it’s nearly impossible to do the same for a bankruptcy discharge.

The extent of credit score decrease that you’ll get is dependent on what your credit score as at when filing for a bankruptcy discharge is. If you have a good credit score, then there’ll be a significant reduction in your score, while an individual with a much lower credit score won’t experience much reduction. Normally, most people that file for a bankruptcy discharge already have a low credit score since they lack the capacity to meet up with payments that made them file for a discharge in the first place.

An awesome thing about filing for a Chapter 7 discharge is that you’ll experience a significant increase in as little as one year after filing for bankruptcy. Every bankruptcy case is unique, but there are some generic things that can be done to increase your score after receiving a debt discharge.

2. New credit opportunities to rebuild credit after bankruptcy

Even though the details of your Chapter 7 bankruptcy will be displayed on your credit report over a 10 year period, while Chapter 13 bankruptcy on the other hand will stay on your credit report for a 7-year period. The impact of your bankruptcy discharge on your credit score will fade with time. 

We’ll briefly discuss credit opportunities after filing for bankruptcy and some other intricate opportunities that can assist you to significantly raise your credit score. You should consider the timing from your last bankruptcy discharge whenever you’re making an application for new credit. Making hard credit inquiries has the potential to negatively affect your credit score—albeit minimal.

A) Secured credit cards

You should be cautious when and how you apply for a new credit card to increase the probability of securing credit when you need one.

To raise your credit after getting a Chapter 7 bankruptcy discharge, you can get a secured credit card. This type of credit card requires that you make a deposit that’ll cover requisite charges in case you don’t meet up with scheduled payments. Use your secured credit cards to make small purchases and ensure that you make payments as at when required. However, ensure that you’re using a secured credit card issuing company that has a policy of reporting accounts to credit reporting agencies. If they don’t, then you won’t experience an improvement in your credit score by applying for secured credit cards.

B) Store credit cards

Also, you can easily get store credit cards to assist in building your credit card without the hassle that characterizes standard credit cards. A characteristic of this type of card is that they feature a much lower balance. There is also the added challenge of figuring out whether you’re allowed to carry a balance on them.

C) Credit builder loan

Your credit score will experience significant improvement if you’re using a mix of credit. When you have enough money to afford to pay for an installment loan, then you should consider opting for instalment loans like furniture loans etc. Take vital precautions when taking a loan after filing for bankruptcy. It’s best to ensure that you’re capable of affording payments before applying for loans after bankruptcy, or you’ll find yourself in a more precarious situation than before.

3. Other noteworthy opportunities to rebuild credit after filing for bankruptcy

Here are some things to do without applying for other loans or credit cards.

A) Review your credit report and correct all identified errors

As we elucidated above, every account that has been discharged by the bankruptcy court should be given zero balance. Quite often, a note to indicate that they were discharged in bankruptcy is usually added. 

If there’s an error in identifying the account that was discharged in bankruptcy, then you should hurriedly notify both your credit reporting agencies and other creditors. A benefit of using Chapter 7 bankruptcy to discharge your debt is that your debt accounts are zeroed, and your creditors no longer have the right to request payment from you.

 B) Get a co-signer and become an authorized user

A good majority of people that file for bankruptcy do so because of an unpredictable negative life event. As such, you may use a co-signer to help ease the process of rebuilding your credit. This method allows you to use your co signer's credit history. However, you should be very careful of who you choose for this method.

C) Avoid carrying a balance

Your debt utilization rate is a very important attribute of your credit score. This debt utilization rate can best be defined as the sum obtained when total credit debt is divided by total credit remaining. The credit utilization rate sums up to 30% of the credit score.

When the rebuilding process starts, you’ll have a very low credit card available. Your utilization rate will be extremely if you’re using a $0 balance.

D) Timely make all debt payment

It’s best to make all required debt payments as at when due. Missed or late payments have an immensely negative impact on your credit score in a substantial and quick way.

It’s best to apply for store credit cards when you’re financially stable. This is because they’re much easier to get than other types of credit cards; it also helps to build a credit score for more beneficial loan terms. However, you should be careful of using these credit cards as their interest rates might increase significantly as time goes. As such, you should charge only small amounts, and then clear off those amounts as soon as you can to avoid paying an outrageously overpriced interest rate.

 E) Have an Emergency Fund

When creating a budget, ensure you take steps to contribute to your emergency fund every month. It might be best to begin with an emergency fund, and then you gradually raise your contribution as your income increases. Having an emergency fund ensures that you’ll avoid taking on debt in an instance of an emergency financial demand. If you’re of the opinion that your credit right has been violated, then visit USA.gov for the next step to take. Chances are high that you’ll begin to receive offers for credit in a few months after you’ve completed your Chapter 7 bankruptcy case. Take time to find the most ideal interest rate and the most favorable term before signing a credit agreement.

Also, ensure that you’re capable of making requisite monthly payments before you sign any loan contract. Taking credits to improve your credit score can further worsen your credit score if you can’t afford those debts.

Note: Everything that has been listed above can be done yourself without the aid of any company or third party. You can improve your credit score yourself. Most offers to help improve your credit score after getting a Chapter 7 discharge are scams, so you should put in an effort by yourself to come up with a favorable credit score. 

4. Managing finances after a bankruptcy discharge

You need to always have it at the back of your mind that bankruptcy is a debt relief process. Thus, a bankruptcy discharge is bound to help dispose of most or all your bankruptcy cases. This means that both creditors and their debt collectors no longer have the right to keep harassing you for debt payments. The days of worrying that your debt collectors or creditors will soon harass you are over. However, your focus should be redirected towards creating your budget and living within its confines. It’s imperative that you have a budget after a Chapter 7 bankruptcy discharge. With top-notch money management skills, you can take advantage of your Chapter 7 bankruptcy discharge and create a life of financial freedom for yourself. Budgeting creates room for you to avoid future issues. Here are some of the advantages of creating and using a budget:

  • You’ll easily track how you spend your money
  • You’ll make better decisions regarding ways to spend money
  • It allows you to have much better control over your finances
  • It helps you create financial goals and craft an effective strategy that’ll help you achieve those goals
  • It helps you to identify the areas of your budget you need to trim
  • It helps you plan better for emergency spending
  • You’ll make more informed decisions on incurring debt
  • It gives you a quick warning of impending financial issues; this way, you can easily make requisite adjustments before the problem comes up.

Budgeting allows you to save money for the things you truly desire. By having apt control of your finances, you can easily save some money to purchase things you find highly beneficial. However, if you recently got a Chapter 7 bankruptcy discharge, then your focus should be on managing your money better through creating a budget to manage your finances better.

READ NEXT: Heads Up: Look Out For These Things When Buying A New Home

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