The decision to file for bankruptcy is often a difficult one—and the complex legal process can not only be challenging but damaging to your credit. Filing for bankruptcy can put a big dent in your credit score and it will take some time to recover. In spite of the damage to your score, it's still possible to get credit. Here is everything you need to know about being able to get credit after a chapter 7 bankruptcy.
Credit Scores after Chapter 7 Bankruptcy
Filing for bankruptcy comes with a downside—it can hurt your credit initially. Although a Chapter 7 bankruptcy will usually stay on your credit report for ten years, the impact goes down with time. The bright side? Your bankruptcy won't prohibit you from obtaining new credit and moving on with your life.
If you're like most, your case will move through the process in about four months, and you'll be able to begin rebuilding your credit after receiving your bankruptcy discharge. In fact, most debtors start receiving new credit card offers shortly after they receive their discharge. Credit card companies realize that your discharge will free up money for other bills, so you're more likely to pay back your debts after bankruptcy.
You're Only Eligible for Certain Cards
With a less-than-stellar credit score, responsible use of a credit card can help rebuild your score. The best move is to apply for a card designed for someone looking to build their credit. A secured card is an ideal card for this purpose and even with a fresh bankruptcy, you may be able to get approved. With a secured card, the credit limit you receive is typically equal to the amount of the security deposit you put down.
Consider a Credit-Rebuilder Loan
Credit builder loans are another way to build your credit without having to qualify for a traditional loan. With a credit-builder loan, the lender holds a certain amount of money in a secured savings account or certificate of deposit in the borrower's name. The borrower then makes monthly payments—including interest—until the loan is repaid.
Depending on your bank, you may also have the option of a secured loan, where you borrow against the money already in your savings account. As with traditional loans, the financial institution reports credit-builder loan payment activity to the major credit bureaus, which can improve your score over time.
What to Do when You Start Rebuilding
When your credit score begins improving, plan a spending strategy. If you qualify for a no-fee credit card, choose it rather than one that charges an annual fee. Make a budget and stick to it so you never again accrue debts that you're unable to pay down monthly. If an emergency forces you to run over budget and run balances on your credit cards, aggressively pay off the card debt as soon as the emergency passes. Try to build an emergency fund so you don't need to run credit card balances in the first place.
Don't go overboard. One secured credit card is all you need early in post-bankruptcy. Simply using the secured card and then paying the monthly statement in full will begin rebuilding your credit. If you had trouble managing money in the past, the disciplined use of a single card will not just rebuild your credit score, it might even help you build new and better spending habits.
At A.K. Smith LLC, we help you to start your journey towards financial freedom. We present you with critical information on how you can restart your credit after filing for bankruptcy. For many, bankruptcy provides a fresh start and is the first step to rebuilding credit. Contact us to learn more and begin your journey towards financial freedom.