Can I Improve My Credit Score After Bankruptcy?

A creditor will not consider you to be too much of a credit risk, even if you did not pay off a large loan to a lender before filing.  It is in a creditor’s nature to want your business.  Indeed, you will soon be able to shop around, purchasing a wide variety of consumer products or services on credit.  Without question, making small purchases on credit and paying them off on time affects your credit score positively.  By comparison, a purchase on credit that is not timely paid and results in a default, affects your credit score negatively.  These links are clear and undisputed.  Your credit score proceeds to travel with you wherever you go, and no one wants to have poor credit.  In fact, good credit can be quite the asset in life.  Therefore, it is always wise to be mindful of your debt obligations, whether those obligations are related to secured or unsecured debt.

If you plan carefully, paying your debts in a timely fashion after you file bankruptcy, then you will likely be in a position to invest in a new home in 2 years.

In fact, many former clients and their partners are able to turn the page and purchase a new house in 2 years. Why 2 years? Most mortgage companies (but not all of them) have underwriting requirements that the prospective debtor be 2 years post-bankruptcy.  That is the reason why a person needs two years, which also gives him or her the time to build better credit. If you are wondering what sort of mortgage payment you can expect, a mortgage calculator is always a good tool.

Credit scoring companies look at several factors when computing your score:

• Payment history (whether you pay bills late or have filed for bankruptcy)
• Outstanding debt
• Length of credit history, and
• How much new credit you have applied for.

Factors for Building Credit

You can start rebuilding your credit immediately after your bankruptcy case. Most people should apply for a credit card immediately after the bankruptcy has been discharged. They do not need to pay any additional credit card fees or go through a long drawn out process just because they have filed bankruptcy.  

Usually, the client will obtain a new credit card. Any sort of credit card will do; it does not need to be a platinum card.  In today’s financial world, a credit card is a necessary tool in case of an emergency, and you can use it to rebuild your credit. 

As a legal counselor, it is my recommendation that you use your credit card wisely. For example, it can be used to pay for relatively inexpensive everyday items such as utility bills or a streaming service.  Again, as a borrower, if you pay this credit card in a timely fashion every month, then your credit score should improve.  It is an easy decision-making process.

Clients often believe that bankruptcy ruins your credit for 7-10 years. Even though the bankruptcy filing will remain on your credit reports for 7-10 years, it should not impair your ability to obtain credit.

It is helpful to be aware that credit-scoring companies focus on several different factors when they compute your credit score:

• Payment History
• Outstanding Debt
• Length of Credit History

Advice for Improving Your Credit Score

Start by making your payments in a timely fashion after your bankruptcy has been discharged. Always be sure to timely pay off any installment loans you may incur.  Waiting too long to pay them or falling short is considered bad financial behavior.  Without a doubt, it is always best to be serious about your personal finance to improve your net worth and avoid a hardship.  Keep your debt load low, especially as compared to your available credit, whether that be secured or unsecured credit.

Be aware of how much money you have in your personal bank accounts.  Please do not carry a significant balance on your credit card.  Keep in mind that, if you fail to comply with the terms of your credit card agreement and fail to make your credit card payments in a timely fashion, the credit card company could significantly increase your interest rate regardless of inflation rates.  They do not need your approval to do so.