One of the most persistent myths about bankruptcy is that it will ruin your credit forever. It’s true that bankruptcy stays on your credit report for quite some time, but remember, if you’re in a position where you need to file bankruptcy, you probably already have delinquent debt that is hurting your credit even more.
In our experience, most clients see their credit improve within one to two years of filing bankruptcy. It’s an opportunity for a fresh start, and if you take advantage of that opportunity, you can get on the path to a much brighter future. Here are a few tips from our experienced South Carolina bankruptcy lawyers. For more information, check out attorney Ben Matthews’ podcast, Debt Sucks.
Step one: check your credit reports and dispute inaccurate information
Often, people who file bankruptcy just assume their credit will be bad and don’t look too closely at their credit reports. Don’t make that mistake. Once your bankruptcy is complete, the accounts that were discharged in bankruptcy should display as closed on your credit report. If there’s inaccurate or incomplete information on your credit reports, your score may be held back. Dispute any inaccurate information to clean up your credit history and ensure you aren’t starting with an unfair disadvantage.
Step two: do your best to live within your means
We recognize this is easier said than done with the rising prices of groceries and other necessities. But the first step to improving your credit is to make sure you aren’t getting back into the downward spiral of debt that led to bankruptcy in the first place. Accumulating debt you can’t afford to repay will keep your credit poor for a long time. Make the hard budget choices to ensure that your expenses are less than your income each month.
Step three: build an emergency fund
If you’re considering bankruptcy or already in the bankruptcy process, you probably know how disastrous it can be to have an unexpected major expense, such as a car repair, or sudden loss of income. That’s why building your emergency savings is critical. Personal finance experts usually recommend having three to six months’ living expenses in a bank account to ensure you don’t end up having to borrow money to pay an emergency expense.
Step four: get a secured credit card or credit builder loan
A secured credit card is a type of credit card that’s secured with a cash deposit up front. Using a secured credit card can help you rebuild your credit history and show creditors that you can handle debt responsibly. If you pay the balance every month, before the due date, your credit score will start to improve. Alternatively, you can apply for a credit builder loan, which allows you to borrow a small amount and build credit as you make payments. Again, making on-time payments on this type of loan can rebuild your credit history.
Step five: seek other kinds of credit as your score improves
Again, you don’t have to wait for bankruptcy to drop off your credit report in order to have decent credit. If you use a secured credit card responsibly, your score should soon improve to the point where you can qualify for auto loans and many other types of loans. You may even be able to get certain types of mortgages. If necessary, applying with a co-signer can allow you to access other types of credit that you wouldn’t be able to qualify for on your own.
Remember, be cautious: maintain healthy credit habits, live within your financial means, and avoid late or missed payments no matter what.
Start rebuilding your credit today
Is it time for a financial reset? If you’re dealing with overwhelming debt and aren’t sure what to do next, give us a call or contact us online for a free, confidential consultation with Benjamin R. Matthews & Associates.
“I was so nervous and uncertain about what was going to happen, but I was reassured by my Attorney, Ben Matthews, and his staff that all would go smoothly. I am now debt free and I feel that I got my life back.” – Rosalind J.