How To Restore Credit After Bankruptcy
The whole point of filing bankruptcy is to get you a fresh start, which includes increasing your credit score.
Almost all of my clients see a credit score increase post bankruptcy filing. The reason for this is simple: they drastically reduced their amount of debt. I tell most of my clients that filing bankruptcy and receiving your discharge is a lot like turning 18 again. Your past has been reset and the actions you take now, are going to have significant impacts on your credit.
Prior to bankruptcy, most clients struggled with trying to establish credit while having negative past credit marks. It was like running a marathon with a 100 pound backpack. No matter how much effort they would put in, their credit score would stay low.
Getting a bankruptcy discharge changes that. The past is no longer weighing you down, meaning that all positive actions you take going forward, are going to have a positive impact on your credit score.
The goal for most of my clients is to get back to a 700+ credit score 12 months after discharge. In order to do that, the following must be done:
- Establish revolving credit. You have to show that you can manage credit post bankruptcy. I recommend starting off with a secured credit card. Chime currently has a great secured credit card but there are hundreds of companies out there. Just be sure to watch out for the annual membership fees, some of them are very expensive.
- Credit Utilization. Once you have revolving credit, you have to be careful not to use it all up each month. Credit utilization refers to how much of your credit you are using. If you have a $2,000 credit card, and you max it out each month, that means your credit utilization score would be 100%. That is not good and will hurt your credit, even if you pay off the balance each month. Instead, try to use less than 30% of the available credit. So, if you have a $2,000 credit limit, only use $600 of it. To help you do this, simply make multiple payments each month to keep your balance low.
- Pay your balances each month. Make sure that by the end of the month, you have paid off your credit cards completely. In addition to improving your credit, this will ensure you don’t pay any interest on your credit.
- Sign up for Experian Boost. This can help you get credit for other bills you are paying (utilities, cell phone, etc.), which helps show a strong credit history.
If you want to discuss your financial situation in more detail you can call 469-607-8552 or use our online contact form and set up your free financial strategy session (30 minutes). Also, if you decide to hire my law firm and mention this blog, you will receive a 10% discount on your fees.