Hammond & Hammond, P.C.

Consumer Bankruptcy

Rebuilding your credit after filing for bankruptcy

Filing for bankruptcy, whether it is Chapter 7 or Chapter 13, can mean a fresh start for you and your finances. However, in the aftermath of filing, you may find yourself overwhelmed by the state of your credit. A bankruptcy won't disappear from your credit reports immediately, but over time its influence will diminish -- and there are steps you can take to help speed up the process.

While having good credit might seem impossible, it is actually very possible for you to rebuild it. All you need is to understand the methods involved, which is why it's important to hire an experienced bankruptcy attorney. From filing for bankruptcy all the way to the recovery afterward, having a professional at your side is critical to the reconstruction of your credit.

Stay aware of your information

Building your credit score is a gradual process, and it can feel especially gradual for someone who has previously filed for bankruptcy. Keeping tabs on your credit reports can help you correct any inaccurate negative information on your record. While there will be factual negative information as well, accuracy can still improve your rating.

There are a number of tools that provide free credit scores, and as such you have nothing to lose by utilizing them. Keeping track of your scores, in addition to giving you useful insight on your progress, can help shed some light on which paths you should take when deciding on the right credit products for your specific situation.

Know your options when you're looking at products

While your bankruptcy might make lenders uncertain of whether or not you'd make for a good borrower, there are ways to relieve these doubts. You can't build up your score without getting someone to take a chance on you, and as such, there are methods for helping lenders decide they can trust you:

· A secured credit card is a good starting option for someone in the process of repairing their credit, as it is backed by a deposit you provide and is limited to the range of that deposit. While a secured card might come along with high interest rates and annual fees, it is still a great way to increase your score. Using it wisely and paying fees on time can help you along the path to getting a better, unsecured card, while minimizing the risk for the party providing it to you.

· Secured loans, which can come from community banks and credit unions, come in two different types. The first kind involves making a deposit and borrowing against it, meaning you won't have access to the money until the loan has been paid off. The other type doesn't require a deposit at the onset but instead involves the loan itself going into a savings account until all required fees have been paid. Once completed, credit bureaus will be informed of your successful payments, which can help you develop a reputation as a responsible borrower.

· Co-signed loans and credits cards can also improve your score, but this involves another party taking on a significant amount of risk. You would need a family member or friend with good credit to be willing to risk their own credit for you. By co-signing, they would be expected to pay if you fail to do so, which could impact their own personal finances. While the benefits of a co-signed card or loan are obvious, this option can lead to familial problems and lost friendships if you can't make your payments.

· An alternative to a co-signer is obtaining authorized user status on someone else's card, so long as the credit bureaus are made aware of it. Since you wouldn't be fully responsible for the payments, you wouldn't have as much risk associated but also wouldn't see big improvements to your score.

Manage your money and show that you've learned

Demonstrating to potential lenders that you're capable of paying what is required of you is a big step in the right direction. Having a sufficient amount of income to get this done, while still having funds left over, can make you look like a more responsible borrower. Two methods for achieving this are creating a budget and setting aside a rainy day fund, both of which can help ensure that you won't need to take out additional loans or incur credit card debt when you could instead handle unforeseen expenses yourself.

Managing your funds also applies to your credit card balances, which should always be kept well below the card limits. You are trying to demonstrate that you're willing to do what is necessary to bring your credit back to acceptable levels. This involves a great deal of discipline and self-control, but the end result is well worth the difficulties you'll face along the way.

An experienced bankruptcy attorney can help ease the load by providing valuable counsel and assistance whenever it's needed, but the path to building your credit back up begins with you.

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