Getting Your House in Order – How to Rebuild Your Credit Score

February 21st, 2018 by Bunch & Brock

If you have accumulated more debt than you can reasonably afford to pay, filing for bankruptcy is often the best option. When you file for bankruptcy, you are able to get out from under the debt and ensure a better financial future for yourself and your family. However, the bankruptcy will have a negative effect on your credit score. Fortunately, you can take steps to rebuild your credit after bankruptcy.

  1. Create a budget.

Before you start seeking to increase your credit score, spend time creating a budget that will ensure that you are able to pay all of your obligations comfortably. It’s also a good idea to put away some extra money for emergencies before you start applying for new credit.

  1. Apply for secured loans and credit cards.

When your credit score is low and you have a recent bankruptcy on your record, you may not qualify for unsecured credit. However, if you are able to give lenders some extra assurance that you will be able to pay, they are more likely to approve your application. The best way to do this is to apply for secured credit cards and loans, which are credit cards and loans secured by some form of collateral, such as a deposit or asset you own. Keep in mind that these credit options often come with modest limits and high interest rates. However, you won’t be using them on a long-term basis. The goal is to establish a record of making your payments on time.

  1. Make all payments on time.

As you are trying to establish credit, making all of your monthly payments on time is essential. Late payments will appear on your credit report, dropping your score and causing you to appear riskier to new creditors. If you are worried that you will forget to make a payment on one or more of your accounts, consider setting up an automatic draft.

  1. Apply for better credit options when available.

After your credit has started to recover, companies that offer unsecured credit with lower interest rates will be more likely to approve your application. After your score has begun to increase, consider applying for better credit.

  1. Don’t take on more than you can handle.

Although applying for new credit cards and loans is an important part of rebuilding your credit and improving your score, taking on too much can put you at risk of falling behind in your payments. In addition, each credit application you submit results in a hard inquiry on your credit report, which lowers your score slightly. Thus, it is important to take it slow as you rebuild your credit.

  1. Keep your balances low.

One of the most important factors in the calculation of your credit score is your credit utilization ratio, which is the ratio of your outstanding balances to your available credit. In general, it is best to keep this ratio below 30 percent. However, the lower this ratio, the better your credit score will be.

Filing for bankruptcy affects your credit but following these steps will allow you to rebuild it as quickly as possible. If you are considering filing for bankruptcy, please call Bunch & Brock today at 859-254-5522 to learn more.