From credit cards and student loans to automobile financing and necessary living expenses, your bills can be an overwhelming part of your everyday life. Unfortunately, many people not only struggle to pay these debts off, but they also struggle to make the minimum payments each month. This can lead to collections, drops in your credit score, and harassing calls from creditors. In many cases, the inability to pay debts and necessary living expenses will cause you to file bankruptcy.
A bankruptcy filing will discharge certain debts and stop harassing calls from creditors, but it can affect your credit score for up to 10 years. Fortunately, you can begin restoring your credit score after filing bankruptcy using these tips.
Open a Secured Credit Card Account
The need to file bankruptcy can decrease your desire to have any type of debt. However, after filing, you should open a secured credit card account to begin restoring your credit rating.
Visit your regular bank to discuss what secured credit cards they offer. In most cases, you will need to put down cash as collateral, which serves as your available credit. If you put down a $300 deposit, you will have $300 in available credit. You should never spend the entire credit limit, since you will need to factor in interest and other fees.
Unfortunately, there are some negatives associated with a secured credit card. Many banks will charge an annual fee, and you will most likely have a higher interest rate on these credit accounts.
If you make the necessary payments over time, your bank may allow you to put more of a deposit down to increase your credit limit. Your bank will report positive, on-time payments to the different credit agencies every few months.
Sign Up for Automatic Bill Pay
Paying a bill late or completely forgetting to pay the bill can cause late fees and negative reports to credit bureaus. If your checking account offers an automatic bill pay system, sign up for it immediately after filing bankruptcy.
Automatic bill pay ensures bills are paid out of your bank account on time, decreasing the risk of late fees and possible collections. Of course, you will need to make sure to keep a sufficient amount of money in your accounts to prevent a negative standing with the bank.
Apply for a Retail Credit Card
If you feel you can handle the financial responsibility of having another credit card, consider applying for a retail/store card after filing bankruptcy. Most department stores and big-box retailers offer their own credit card and they may have less strict requirements compared to the larger credit card companies.
Retail credit cards do have higher interest rates, so you should only charge a small amount at a time to ensure you are able to pay off the full balance each month. Over time, paying off these small balances on time can improve your credit score.
Live Below Your Means
Certain situations may cause you to lose income or increase the amount of your bills, but many people need to file bankruptcy due to living beyond their means. Purchasing boats, expensive homes, and vacations that you truly cannot afford may result in extensive debt that cannot be repaid.
If you have filed bankruptcy because you live beyond your means, making a serious lifestyle change will be imperative if you want to improve your credit. Sit down with a financial advisor to design a budget that will help you live below your means.
Monitor Your Credit
Checking your credit report periodically can be emotional after filing bankruptcy, but it is important for monitoring your credit for positive results.
Thankfully, each agency offers a free copy of your credit report every year.
Errors do happen, since banks and credit agencies make mistakes, so review your credit report each year for discrepancies. If mistakes are found, contact both the credit bureau and creditor to correct the issue.
Bankruptcy can be a financially and emotionally stressful experience, but it does not have to affect the rest of your life. Using these tips, you can repair your credit report after filing bankruptcy. For more information, contact an experienced bankruptcy attorney from a firm like Wiesner & Frackowiak, LC.
