How to rebuild credit after bankruptcy

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Bankruptcy can provide financial relief, but the downside is that it can have a negative impact on credit. While bankruptcy will stay on a credit report for as long as 10 years, the impact will lessen over time. Whether you’ve filed Chapter 7 (meaning you have the ability to repay your debts) or Chapter 13 (you’re required to pay your creditors all of your disposable income), it’s possible to start rebuilding the credit with a few simple steps.

Credit rebuilding going bankrupt as an entrepreneur can be difficult, but it’s not impossible. The first step is to understand that rebuilding credit takes time and consistent effort.

How Bankruptcy Affects Credit

Payment history is one of the most important factors in determining credit scores. When someone submits a request bankruptcy, the person will not fully repay the debts covered in accordance with the initial credit agreement. This means that when filing for bankruptcy, it can have a significant negative impact on someone’s credit score.

A bankruptcy filing will appear on an individual’s credit report for up to 10 years, making it difficult to obtain credit or loans in the future. An entrepreneur may also find it difficult to obtain credit from suppliers or vendors, as they may be reluctant to extend credit to a business that has filed for bankruptcy.

Regardless of the type of bankruptcy, lenders will see it on a credit report in the public records section, and it is likely to be a deciding factor. After completing the court process, it will show the bankruptcy and included debts that have been discharged.

However, it is important to note that filing for bankruptcy can also provide a fresh start for an entrepreneur, allowing them to pay off their debts and start afresh.

When applying for credit, lenders may not approve certain types of credit – and even if approved, a person may find that they are offered higher interest rates or other unfavorable terms .

Related: How This Entrepreneur Achieved His Greatest Success After His Worst Failure

Can I get a credit card after bankruptcy?

It can be difficult for an entrepreneur to get a credit card after filing for bankruptcy. Many lenders view people who have filed for bankruptcy as a higher risk. However, it is possible to get a credit card after bankruptcy, but it can take time and effort.

The best approach is to request a card specifically designed to help rebuild credit. An ideal card option is a secured credit card – approval is possible even with a new bankruptcy. Secured cards usually have a credit limit equal to the amount of the security deposit provided.

However, some unsecured card issuers will not get a credit score or may extend a line of credit even if there are blemishes in someone’s credit history. Just be aware that these types of cards usually have extremely high rates and an abundance of fees. A secured card is probably the best option with lower costs.

The best ways to build credit after bankruptcy

As soon as a bankruptcy has been finalized, the individual can start working on building credit. Here are some of the best ways:

Maintain payments on non-bankrupt accounts

After the deposit, determine if any accounts have been closed. Although bankruptcy cancels most debts, some may remain. Repaying these balances can reduce the debt-to-income ratio – making timely payments remains crucial. Regular payments will also help to stay on top of bills.

Keep credit balances as low as possible

Credit balances not only have an impact on the rate of credit utilization, but depending on how the need to declare bankruptcy has developed, people should seek to avoid falling into the same habits. Reduce credit card use and pay off balances – this will benefit your financial health.

Build up emergency savings

Save money every payday to build emergency savings. This will provide a fund for unforeseen expenses, which will help avoid incurring future debts that could hinder credit rebuilding.

Get a secure card

As we touched on above, a secured credit card could help rebuild credit. Although a security deposit is required, each time a refund is made to the card account, it will be reported to the credit bureaus. This will demonstrate responsible credit behavior.

Some secure card issuers allow cardholders to switch to an unsecured card after making regular, one-time payments. This is a great advantage because there will be no need to apply for a new card when the credit starts to improve.

Consider Credit Builder Loans

A credit builder loan could be another way to help build credit. An individual will need to have a certain sum of money held in a secure savings account, but the individual can make monthly payments until the loan amount is paid off. Depending on the lender, it is also possible to have a secured loan that allows you to borrow against savings.

As with a traditional loan, payment activity on a credit-building loan will be reported to the main credit bureau, which will help improve credit scores over time.

Related: I filed for bankruptcy at 21

How long until credit improves?

This will depend on each individual’s particular circumstances, but if someone is making regular payments and has a low credit utilization ratio and low debt-to-income ratio, they should start to see positive changes in their credit rating after about six months.

However, be prepared to take a long-term approach. Remember that bankruptcy will be on a credit report for seven to 10 years. Although the effects diminish over time, responsible behavior will lead to improvements. Stay patient.

Related: 6 Steps Resilient Entrepreneurs Should Take to Bounce Back From Bankruptcy

Can I get a mortgage after bankruptcy?

You don’t have to wait for bankruptcy to clear your credit file to apply for a mortgage. However, if you are applying for a conventional mortgage, a person will have to wait at least four years after discharge from bankruptcy. If there are extraneous circumstances, it may be possible after two years.

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