While no one wants to declare bankruptcy, it doesn’t have to destroy your credit worthiness forever. Bankruptcy gives you relief to get your past obligations under control, but may seem like starting all over on the path to financial independence. Much needs to be done to restore lenders’ confidence and trust, so here are some recommendations.
How to Restore Your Credit History after a Financial Failure?
Restoring your credit after bankruptcy is a challenging task, but can be done. Some people choose to look for a credit card to recover from bankruptcy with no credit check. Many such cards are secured, with some exceptions. If you really want to restore your financial reputation, pay attention to the following points:
1. Check information from credit bureau reports.
Step one is a comprehensive review from your credit bureau reports. Why is it important? Credit bureaus (such as TransUnion or Equifax) provide the lenders with information about your history of pay billing bills on time, and serve as a predictor for future credit. You want these to tell future creditors a positive story. Unfortunately, a bankruptcy stays on these reports longer — usually 7 to 12 years after it happens. Credit repair means paying your bills on time and checking credit bureaus reports at least once a month to verify there aren’t any incorrect reports. You can either contact the bureaus directly if you find problems, or you can use a service such as Credit Karma.
2. Actively seek to improve your credit score.
Creditors heavily rely on credit scores, and is the key factor credit card companies consider before deciding whether to issue new credit or not. Credit scores are based on the information about you collected by credit bureaus. There are at least three existing scoring models, and each credit bureau uses its own approach, but in general, your credit score depends on the following information:
- Overall payment history;
- Length of credit history;
- The presence (or absence) of debts;
- Open credit lines and balances (mortgages, credit cards, auto loans, etc.).
Usually, a credit score ranges from 300 to 850, with scores of 700 and higher considered very good. Be aware, however, it you may actually have three different scores at once. Each credit bureau can give you its own score, and the ranking of different bureaus may vary. The best way to improve your credit score is to pay debts on time and to give some consideration to the frequency with which you apply for additional credit.
3. Make getting an unsecured credit card a milestone goal.
As mentioned above, most companies don’t issue unsecured credit cards to people with with weak credit history, and bankruptcy certainly makes your case weaker. Consider getting the secured card as a pathway. Diligently pay this card on time next 12 months and then attempt to get an unsecured one. The credit limit at this stage will likely be quite low, but this is a journey to credit repair, and it will take time as you progress through more challenging obstacles.
Bankruptcy does not have to be a dead end; there are ways to hit the reset button in your financial history. Good luck with restoration of your image and access to finance!