Sometimes, one bad decision can be just the start of many such similar ones. Before you know it, you have amassed a bad credit score and huge loans which you have no means to pay off. This invariably leads to filing for bankruptcy which may seem like the end of the world. However, things couldn’t be farther from the truth as bankruptcy offers you a chance to wipe your slate clean. You could get rid of old debts which kept your credit score down and get a fresh financial start to rebuild your credit score.
Bankruptcy and its Effect on Credit Scores
A credit score is a concise way to show lenders your financial position, i.e. how much risk it would be to loan money to you. A high credit score means your debts are paid on time and on a regular basis, whereas a lower credit score means that you are irregular in making payments. It is, however, incorrect to assume that filing for bankruptcy will end up lowering your credit score permanently. Bankruptcy can cause a temporary drop in your credit score. You can use a number of tips to rebuild your credit score.
How to Rebuild Your Credit Score?
As per Sacramento based law firm Recovery Law Group, the primary step needed to improve your credit score is to know your credit standing. For this, you need to obtain your credit score copy from any of the major credit reporting agencies. Checking for any errors is essential, such as any debt which should be discharged by your bankruptcy, contact credit agency and get the issue resolved. Stick to basics when it comes to basics, like don’t spend more than you can afford to, pay your bills in full and on time, including debts which were not discharged by bankruptcy (student loan payments).
The biggest mistake people can make after bankruptcy is to avoid credit altogether. Though initially, it may seem like a bright idea to steer of any new debts, this won’t be of any help to rebuild your credit. Instead of completely avoiding credit responsibility, take it in small steps. The easiest way to do this is to take advantage of a secured credit card which reports to one of the top 3 credit agencies and make regular payments on time. Paying off entire balance monthly helps avoid making interest payments apart from showing lenders that you aren’t a credit risk anymore. Regularly doing the same can lead to a drastic improvement in your credit score.
Other methods of getting better credit score comprise of getting a new bank account or applying for a gas card. Paying for gas for your car through this card helps rebuild your credit score as it is one of the regular purchases. Signing up for automatic bill pay ensures that all your bills are paid on time, thereby improving your credit score.
The most important aspect is not to lose your patience during the entire process of bankruptcy. Though these are trying times, ensuring that you keep making regular payments and develop good financial habits will go a long way in improving your credit score. Make regular credit score checks and soon your ratings will increase with time.
Bankruptcy filing offers a chance for people to not just wipe off their dischargeable debts, start fresh and improve their financial condition. By taking appropriate steps to fix your credit score you can finally breathe free. Consult bankruptcy lawyers to help you guide through the process and inform you of all options.