You filed bankruptcy, received your discharge and now want to start life after bankruptcy. Step one of life after bankruptcy should be to repair your credit and start building a positive credit history. In order to begin building a positive credit history you need to adhere the following steps:
- Make sure all of your debt that was included in the bankruptcy is being properly reported to the credit bureaus. All debt that was included in the bankruptcy should be reported as “discharged in bankruptcy” with a zero balance. If you have any accounts still showing a balance, or still reporting missed payments after bankruptcy dispute such information with each credit bureau to correct this misreporting. If the credit bureaus will not change the reporting as “discharged in bankruptcy” you could sue them in bankruptcy court for violating your bankruptcy discharge.
- Establish a realistic budget. You have a habit of spending more than you make, i.e., you have filed bankruptcy. Thus, to avoid falling into the very same habits, develop a realistic budget and stick to it. Cut off unnecessary purchases while accounting for the miscellaneous expenses. Every budget should include at least 15% of an entire budget for miscellaneous expenses.
- Apply for new credit. Believe it or not but the easiest and fastest way to begin improving your credit is to obtain new credit. Credit card companies want you to demonstrate to them that you are able to handle debt again.
- Avoid accepting too many credit card offers. Remember what got you into to this mess, credit cards. The more credit cards you have the more likely you are to over spend. Thus, take two to three new credit cards and limit all activity in the first month to credit card #1, the second month to credit card #2 and so on. By limiting the spending to one credit card you can better understand, appreciate and BUDGET for your spending.
- Pay off all credit card debt in full every month. Again, remember what forced you into bankruptcy, a mountain of credit card debt. Any new credit card offers you receive after bankruptcy will include very high interest rates, some as high as 35-40% APR. Thus, if you do not pay off the balance in full every month the credit card bills will be impossible to pay down.
- Do not fall for the “teaser” rates. The local electronics store is offering no interest for one year on purchases over $1,000.00. You want a new television and it is $1,800.00. You figure you can pay off the television for only $150 per month for the next 12 months. However, you are unable to pay the television off during the 1 year period and you get hit with $500+ in interest. Do not fall for these teasers. If you do not have the cash, do NOT buy the product.
- Pay all your bills on time. While this might seem obvious, this factor is the most important factor in building your financial and credit future. Your credit after bankruptcy is like a fragile egg. Any sort of harsh movement could cause a crack. As a result, any late and/or missed payments will send your credit in a downward spiral you might not be able to recover from.
- Set up all bills on automatic payment. Make sure all of your bills, from mortgage, car payment, electricity payment to minimum payment on credit cards, be placed on automatic payment. By having all bills on automatic payment you save yourself the risk and stress of ever missing another payment.
- Call your creditors before missing a payment. If you can’t pay a bill call your creditor to ask about another possible solution other than the required payment. Most creditors will work with you until you get back on your feet again.
In closing, there is life and credit after bankruptcy. However, to increase your chances of success, follow the above outlined steps.
Randy M. Creighton, Esq.