Rebuilding Credit After Bankruptcy

If you are thinking about filing for bankruptcy, you may be wondering how it would affect your credit score. In a very real way, that answer depends on you.

At first, a bankruptcy filing will normally cause your credit score to drop substantially. This is a deterrent to some people who worry that it may prevent them from buying a home or qualifying for a loan later on. However, many people who make a point of rebuilding their credit after bankruptcy are surprised to discover that they are able to qualify for a mortgage within just a few years.

Bankruptcy can be a step in the right direction

If you are willing to work hard and be patient, you may find that bankruptcy was the first step back toward healthy credit. Although it does take a toll on your credit score in the short term, bankruptcy can also help you break free of the pattern of unpaid bills – which, if left unchecked, will continue to erode your credit score indefinitely.

Your credit score is based on your financial activities and is designed to give lenders an idea of how likely you are to repay a loan. When you pay bills late or do not pay them at all, this lowers your credit score, indicating a higher level of risk to potential lenders. Conversely, when you pay your bills on time, it raises your credit score and makes you more attractive to potential lenders.

With this in mind, one of the most important things you can do to begin repairing your credit after bankruptcy is to pay your bills on time, every time. This will help establish a new pattern of financial responsibility that, over time, will be reassuring to potential lenders.

Using credit cards after bankruptcy

Especially if your previous financial problems involved substantial credit card debt, you may not be eager to use credit cards again after bankruptcy. However, if and when you do feel comfortable doing so, borrowing money in a careful and responsible way can be an effective way of building credit more quickly after bankruptcy.

You do not need to charge very much to your credit card to help boost your credit score, so it is wise to spend only a small amount at a time and pay off the entire balance – on time – every month. This will help keep your debt at a manageable level and will also prevent interest fees from piling up. Another reason to charge only a small amount to your credit card is that maxing out an account or coming too close to your credit limit can have a negative impact on your credit score.

For more information, talk to a lawyer

If you would like to learn more about bankruptcy and whether it may work for you, get in touch with an experienced bankruptcy lawyer in your area. Many bankruptcy law firms offer initial consultations at no charge.