Reestablishing Credit after Bankruptcy

Struggling with minimum payments, narrowly avoiding foreclosure and repossession from month to month, and dealing with the stress of constant collections calls and garnishment threats from creditors is an extreme amount of stress-stress that can be alleviated when you file for bankruptcy. If fears about your credit rating are holding you back, realize that your credit score may actually be higher after bankruptcy discharge than before, because all of your debt is wiped out!

 

How Long Will It Take?

Many people are worry about the length of time that it will likely take to reestablish a sound financial picture. However, the time frame for reestablishing credit is not nearly as long as most people imagine, and it is definitely not as long as it would take to struggle through a pre-bankruptcy financial mess. In addition, the road to financial health begins as soon as a bankruptcy petition has been filed.

 

During Bankruptcy

During bankruptcy, try to maintain in good standing any accounts that already exist. Doing so acts as preparation for reestablishing finances after the bankruptcy has been discharged. Try to keep any bank accounts and credit accounts healthy during bankruptcy.

 

After Bankruptcy

After a bankruptcy has been discharged, the real work begins. For the first two years after bankruptcy, you can reestablish credit by taking advantage of the many consumer loan products and secured credit cards designed to give post-bankruptcy filers a second chance. Making payments on time, sticking to a budget, building a savings cushion, and maintaining a sound employment history are all things that the post-bankruptcy consumer can do doing during those first two years.

 

Secured Credit Cards

Many banks offer secured credit cards. Basically, you deposit with the lender an amount of money that is equal to the credit limit on your card; this "secures" the card. The lender is guaranteed its money even if you default on paying. This option offers you higher credit limits than you would typically get with an unsecured card, but it does tie up some of your money. Usually, banks that offer this option will offer you an unsecured card after a year of responsible use of the secured one.

 

Credit Unions with Different Guidelines

Many banks and other traditional institutions are strict in the guidelines they use for accepting and rejecting credit applications. Credit unions tend to have different guidelines, which are not as strict and tend to be more understanding of those who have filed bankruptcy. Therefore, if you are looking to reestablish credit after bankruptcy, applying for a loan from a credit union may be a good option for you. There are also other lenders who have post-bankruptcy-friendly guidelines.