Bankruptcy is a valuable tool for helping relieve the burden of overwhelming debt, but it does come with downsides. While the idea that it completely and irreversibly destroys your credit is a misconception, filing for bankruptcy does affect your credit score for a period.
It is important to take steps to begin rebuilding your credit in the wake of bankruptcy.
1. Understand your credit report
Start by obtaining a copy of your credit report from major credit bureaus. Analyze it thoroughly to identify any discrepancies or errors. Dispute inaccuracies promptly to ensure your credit report accurately reflects your financial history.
2. Create a realistic budget
Establishing a realistic budget is important for both recovering financially and maintaining that recovered state. Evaluate your income, prioritize essential expenses and allocate funds to repay outstanding debts. This disciplined approach will not only help you manage your finances but also demonstrate responsible financial behavior to creditors.
3. Obtain a secured credit card
Accruing tools that drag you further into debt may seem counterintuitive, but credit cards will not add to your debt if you pay the balance on time to prevent interest from adding up. Consider applying for secured credit cards to rebuild your credit. These cards require a security deposit that serves as collateral. By using and repaying them responsibly, you can gradually rebuild your creditworthiness. Ensure that the card issuer reports your activity to credit bureaus for maximum impact.
4. Pay your bills on time
Consistently making timely payments for utilities and other bills is a key factor in rebuilding credit. Set up automatic payments or reminders to avoid missing due dates.
According to USA Today, Americans are an estimated over $17 trillion in debt. Bankruptcy can erase or help you pay back debt, but your credit history will reflect it for a time. However, you have options to try and raise your credit score while you wait for the bankruptcy’s removal from your history.