You took the leap into bankruptcy to stop mounting debt, foreclosure and creditor harassment, and finally have a moment of relief to reassess your financial position and plan for the future. Now what? For most consumers, the next step after debt settlement or bankruptcy is to rebuild and repair credit. This step is essential to securing a safe financial future, but do you know the best ways to go about it?
Rebuilding credit after bankruptcy
While repairing credit after bankruptcy may take several years, taking the following steps to rebuild credit after bankruptcy can help you achieve a positive financial future:
- Monitor credit reports for errors and contact credit bureaus to promptly dispute mistakes such as closed credit cards marked as open, late payments or unpaid bills. Each credit reporting agency offers one free report a year, allowing you to check your credit status for free every few months.
- Create a budget to avoid overspending and stick to it, making sure to pay off the entire balance of credit cards on time each month and not to overextend yourself.
- Build new credit with a secured credit card, then apply for unsecured credit cards after you establish timely payments. While store cards used to be a good option, applying for a new store card can result in a credit inquiry and credit line denial, so it is best to wait until after you reestablish credit to do so. It is also important to avoid cards with large upfront fees, to avoid carrying a balance and to request a credit increase once a year. For loans, avoid high interest rates and high fees.
- Start an emergency fund equaling three to six months of expenses to help in situations such as job loss or medical emergency. Transfer a portion of your paycheck or create an automatic bank withdrawal from your checking account to build this savings account.
When you file for bankruptcy, an experienced Pennsylvania bankruptcy attorney can help you understand your options and take the next steps to establish good credit and begin your journey to financial security.