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Rebuilding Credit After Bankruptcy

Your life doesn’t end when you file for bankruptcy. There are many positives to this, such as having unsecured credit card debt discharged. There are also some negatives, mainly a major blow to your credit score. It’s not impossible to improve a bad credit score once your bankruptcy lawsuit is final.

Here is the good news.  Once your bankruptcy case concludes, you should take a hard look at the current state of your finances. Even if the court discharged some debt, you may have to still repay secured loans under a new payment plan. There may be tax issues to discuss with your bankruptcy lawyer in Scottsdale. More importantly, you should focus on your current credit score. Here are several tips for bringing it back up to what it once was:

Don’t Make the Mistake of Avoiding Credit Cards

Once you have undergone one bankruptcy, it’s easy to think that you will never use another credit card again. But this is usually noted feasible. You will likely need a credit card to improve your credit score. Not having a credit card is similar to having bad credit. A credit score reflects your reliability as a borrower. You can earn it back by proving that you are a responsible borrower to the bank. Therefore, you should keep your credit card or open a new account. However, do make payments on time. Once you keep making payments over time, your credit score would naturally improve.

Focus on Your Credit Utilization Ratio

Credit utilization ratio (CUR) is sometimes called the balance-to-limit ratio. It refers to how much credit you use as opposed to how much is left unused at the end of the month. This little number plays a major role in how fast and effectively your credit score improves. If you have a high utilization rate, this would negatively affect your credit score. If you have a $1,000 limit on your credit card, and if you use all $1,000 to buy things each month, then your CUR would be extremely high, reflected in a bad credit score. Ideally, you should keep your CRU in the 50 to 60 percent range. For the aforementioned credit card, if you were to spend only $500 or $600 a month, you would have a roughly balanced ratio that would work to your advantage.

Pay Off Majority of Credit Card Balances Each Month

Pay at least 75 percent of credit card balances each month. Ideally, you should repay it all back. Maintain your CUR with payments on time. Keep in mind to never max out the credit limit.

Use a Secured Credit Card

A secured credit card is similar to a regular credit card, but there’s a cash collateral required to obtain one. You will receive one of these after making a security deposit. These cards are designed to help those with bad credit gain positive credit scores. Unlike with regular credit cards, banks typically make payment information about secured credit cards available to credit agencies without delay. Therefore, you can rebuild your credit faster with a secured credit card.

It’s also advisable not to borrow money, such as for a loan, until your credit score is at an ideal level. And don’t rush to increase your credit score either, as it can bac-kfire. Develop an actionable strategy that works best for you to gradually improve your credit score after bankruptcy.

Bankruptcy is a bridge to your new future.  Let Canterbury Law Group take you there and create your future!

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