Bankruptcy can be one of life’s harshest financial lessons. Whether it comes because of past mistakes or unexpected life events, it can destroy your credit and make it difficult to move forward with your future financial plans. However, it is possible to rebuild your credit after bankruptcy by following these steps:
Get a copy of your credit report from all three bureaus. Look over the report carefully to find areas where you can improve. You may want to consider working with a credit repair counselor to get expert advice on what steps will make the most difference to your credit score. Together, you can set financial goals and make a detailed plan on how you will accomplish these goals.
Open a Checking and Savings Accounts
Opening basic bank accounts can help you keep track of your money and show future lenders that you are able to responsibly handle your money. It is helpful to do all your future financial dealings through one institution because many banks and credit unions have perks for valued customers.
Your savings will be an important step in helping you reestablish your financial independence and avoid entering into bankruptcy again. By building up a robust savings account, you can feel assured that you will always have enough money to pay your regular bills as well as cover any unforeseen emergencies.
Create and Follow a Budget
The most important step in rebuilding your finances and your credit is to make and follow a realistic budget. Make a list of all your income and expenses and figure out how much you can afford to spend in each category each month. Make sure to differentiate between needs (rent, groceries, insurance, etc.) and wants (new electronics, eating out, high-end clothes, etc.). If you are short on money, cut back on the wants, not the needs. Once you have created a budget, make sure you stick to it. Even if you see a great sale or really want a new item, if it does not fit in your budget, don’t buy it.
Pay Bills On Time
Not only will paying your bills on time help establish good financial habits, but it will also save you from having to pay late fees. While rebuilding your credit, it is especially important to pay your bills off completely every month. This applies to all bills – rent, utilities, credit, etc.
Establish a Line of Credit
Once you have some savings set aside and have established a budget, it is time to start opening new credit accounts. However, you should not jump in and start recklessly racking up credit card bills. Make sure you carefully plan any expenses into your budget and choose the right accounts for your situation. Often banks and credit unions offer the lowest rates and most favorable terms for current customers, so you may want to first talk to the bank where you have your checking and savings accounts.
If you are not immediately eligible for a traditional credit card, you may be able to get a secured credit card through your bank. A secured credit card is a card where you put a specified amount of money on the card and then use it as a debit card. However, unlike a debit card, the payments you make on the card are reported to all three credit bureaus and can help increase your credit score.