Every year some consumers find themselves in a very difficult financial position. While this could be due to a variety of different factors, getting out of debt can be a big challenge. For those that cannot find another way to pay off their debt and are looking for a clean start, filing for Chapter 7 bankruptcy could be their best option.
While Chapter 7 bankruptcy can be a great way to clear your debt, it will leave your personal credit in a very tough position. In many cases, it will drop by hundreds of points and the bankruptcy will remain listed on your credit report for up to 10 years. While bankruptcy will always hurt your credit score and credit history, it is still possible to improve your credit score over time. There are several tips that should be followed in order to rebuild your credit after declaring bankruptcy.
The first step in rebuilding your credit is to start reorganizing your financial life immediately. The first thing that you should do is engage a credit counseling service. They will help you to reexamine why you found yourself in such significant debt in the first place. The credit counseling agency will also help you to prepare a financial budget, which will include setting aside money for an emergency reserve and long-term financial goals. Part of the process will include going through your historical bank accounts to find ways that money had been overspent or wasted in the past. This exercise will help you to avoid making the same mistakes going forward.
Check Credit Report and Score
Around 45 days after your bankruptcy is finalized you should spend time reviewing your credit report and score. 45 days provides all of your creditors with enough time to properly file the credit discharge and closure of your accounts. When checking your credit, be sure to focus on all of your outstanding and historical credit obligations are recorded appropriately. This will prevent you having to fight to have the debt charged off again if it was not properly recorded the first time. While it may cost extra, you should also see your credit score from all three credit bureaus.
Open New Accounts
The best way to rebuild your credit is to start opening new accounts immediately and to keep them in good standing. While traditional credit card providers and banks will likely not be willing to provide you with new debt for awhile, you could still open up new accounts that are fully secured. The providers of these accounts will require you to post the full credit amount up front in the form of cash, but these accounts will be reported to the credit bureaus in the same format as any other account. These accounts will be completely risk-free to the bank and will add a lot of points to your credit score over time.
Stay On Track
Most importantly, you need to stay on track of your finances and obligations going forward. You should create a system for allowing you to continue to monitor your budget and spending and set realistic savings goals. Furthermore, you should review your credit reports and score at least once every three months to see how your improved practices will benefit your credit score. This should then help you feel motivated to stay on track going forward.