How to Improve Your Credit Score After a Bankruptcy
Chapter 7 bankruptcy stays on your credit report for 10 years, while Chapter 13 stays on for 7 years. Unfortunately, a low credit score can even raise your auto insurance rates in many states.
It may seem like an uphill battle after you emerge from bankruptcy, but your credit score can improve substantially in just a few years. Here are seven tips for improving your credit score quickly.
Seven tips for improving your credit score after you declare bankruptcy
- Get a secured credit card. You put down a deposit which acts as collateral. Once your score is good enough, or you close the account, the deposit will be returned. Eventually you’ll improve your credit score by making timely payments and can look for credit cards with better rewards and features for which you can now qualify.
- Don’t be afraid to use a credit card. Use your credit card at least monthly. It is important to show continuous, timely payments.
- Always pay your balance on time and in full. Late payments stay on your credit report for 7 years.
- Keep your credit utilization low. Credit utilization is the ratio of your balance to your credit card limit. As a rule of thumb, keep it under 30%. So, if your credit limit is 1,000 per month, don’t spend more than $300. For individuals emerging from Chapter 13 bankruptcy: if you have a 401(k) plan and need money, you can keep your credit utilization low by obtaining a retirement plan loan. They are usually low interest and do not get reported to credit bureaus. Be sure it’s small enough to pay it back within 5 years, because any unpaid balance will be considered an early retirement distribution and be subject to taxes and penalties.
- Have only one credit card open. A limit of one will reduce your chances of overspending and prevent drops in your credit score from multiple credit applications.
- Don’t lower your credit limit. Although it might feel safer, lowering your credit limit will cause your credit utilization to rise. For example, if you spend $300 with a $1,000 limit, your credit utilization is 30%, whereas if your limit is $500, it doubles to 60%. Low credit utilization is viewed more favorably by credit bureaus, as it shows you are exercising restraint.
- Open a checking and savings account. These will help you set up automatic payments to ensure bills are paid on time, and encourage you to start a small emergency fund. Create a budget to track and better understand your spending habits
Remember that credit bureaus are not perfect. You can start improving your credit score immediately by obtaining a free copy of your credit report and checking it for errors. Common mistakes, like being mixed up with someone who has a similar name, or having closed accounts still appear open, can be corrected. Your credit report could have mistakes due to identity theft, so it is best to check it regularly.
Skilled guidance from a knowledgeable bankruptcy attorney in Texas
To learn more about the effects of bankruptcy on your credit score and how you can rebuild your financial standing after filing, consult an experienced Texas bankruptcy attorney at Marcos D. Oliva, P.C.
About the Author: Marcos Oliva Marcos Oliva is the principal attorney at Oliva Law. He is admitted to practice law in the State of Texas, the United States District and Bankruptcy Courts in the Southern District of Texas, and the United States Patent and Trademark Office.
Jul 25th, 2018