How To Fix a Poor Credit Score after Bankruptcy Hits You

Filing bankruptcy is an indication that you have two things to worry about - 1) How would you recover your financial status? and 2) How would you rebuild your credit score?

Every problem has a solution and speaking of your worries, well how about you begin with healing first. Healing happens when the damage that has been done can no longer control you. A bankruptcy could be listed on your credit history report for a minimum time period of 10 years now and hence can affect your credit history score too. However, the bright side is that nothing documented on your credit report would be lasting forever and hence, you can start thinking about undertaking the necessary steps that could help to build your credit score again.

What is a Credit Score and Why Is It So Important When You Apply for a Loan?

Keep this in mind that when a borrower applies for a loan (which can be of any type such as credit card, mortgage, car loan, student loan, etc), the lender or the financial agency would first look into your credit history report. This is because, it is the credit history report that will help the lender to determine whether they should consider you as an eligible borrower or not. Many of the lenders refer to the FICO scores when they take a decision. An average FICO score of 700 or above is usually considered to be good and can get an applicant immediately approved for a loan. However, since we are speaking about bankruptcy, it is equally important for one to know how bad would it affect the borrower’s credit report.

Types of Bankruptcy That Borrowers Could Face

There are two kinds of personal bankruptcies that affect a borrower’s credit score report. One of them is the Chapter 7 bankruptcy or the Liquidation bankruptcy. This will stay on the credit report file for 10 years. Borrowers who have been wiped out of their debts due to of bankruptcy, file for Chapter 7.

The other one is the Chapter 13 bankruptcy. This will stay on the credit history report for a time period of 7 years. Filing for the Chapter 13 bankruptcy allows the borrower to keep back his/her property. However, he/she would need to repay some or the entire debt for a period of 3 to 5 years. If one finds it hard to follow the payment plan of Chapter 13, then he/she would consider filing for Chapter 7 where some of the assets would be sold off in order to recover some portion of the debt.

Even in that case, you are not doomed forever

This is because most of the financial agencies follow a scoring model that is based on the current credit behavior of the user. So even if your credit report would reveal the bankruptcy for as long as 10 or 13 years, with the passage of time your credit score would less likely get affected by it. Enough reason why you should think about rebuilding your credit score.

How does one start recovering the credit, while waiting for bankruptcy to drop off from the report?

There are plenty of ways to sort out your credit scores. Here are some of the strategies that you can follow in order to begin raising the scores –

#1 - Review the Credit Reports

Make sure you take a look at the credit reports acquired from all the three agencies which are - Equifax, TransUnion, and Experian. Look out for any kind of inconsistencies or errors. Inaccurate reports could only make things worse. So if you find any, then you can immediately decide to file a dispute. Besides, you could even initiate a claim online directly, which is an easy process.

#2 - Think about Getting a New Credit

This is another good way to quick fix your bad credit score. Mishaps can happen sometimes and if you think you can handle another credit, then seek for a loan in order to build a report of responsible credit use. If you are wondering who would again give you a loan with all the bad credit history sticking to your report, well options are many and one such example is the car title loan. Car title loans are in fact a kind of loan designed to help out borrowers suffering from a bad credit history. These type of loans are secured loans, which borrowers can apply for if they own a vehicle. The lender determines the loan amount based on the value of the car and keeps the title of the car with himself/herself. The borrower, on the other hand, can keep the car and use it even while he/she is in his loan term. There are other options too like you can ask one of your relatives holding a card to add you as an authorized user. You would not be legally responsible for making any payments or as such make any changes to the account. Nevertheless, it gives you the right to make use of the account. Speak with the primary card holder first before you decide to take this route. In addition, do ensure that the issuer reports on the activity of the authorized user.

In this way, you can rebuild your credit report once more. However, when it is done, you pay off your loan amount every month. Besides, avoid applying for a loan that you know is difficult to pay back.

#3 - Pay Your Bills On Time

Making your payments on time can account for about 35% of your credit score. If you are thinking about rebuilding your credit score, then make sure you follow a routine that helps you to make payments on time. You can call your creditors in case you run into trouble and explain to them why you are facing a problem. Most of them are very understanding and can help you from falling off the hook even if you could not pay the full amount that is due to.

#4 - Understand Your Limits

Once you have managed to repair your credit score, your hands might itch to borrow another loan. It is important that you learn to keep your balances well below and make yourself aware about the limits in your credit card. If you apply for a credit, make sure to use it sparingly this time and do not forget to make timely payments of your monthly dues. Often, borrowers do not give much attention to the total amount that they owe. This kind of carelessness can often cause problems of debt. In such a case, a credit history report can help them overcome this kind of troubles since the list of information such as the balance amount, percentage rate, and the minimum payment can help them understand how much do they still have to pay in order to fix the credit score.

It Takes Time

Rebuilding your credit score could take some time and that means you need to be patient. Following the above-mentioned guidelines could help you build a better financial future for yourself and improve your credit score.

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