Build Your Credit After Bankruptcy

At the Dolhancyk Law Firm, we want our clients to successfully move forward after bankruptcy. Are you wondering how to rebuild your credit after bankruptcy? Most bankruptcy professionals overlook this important issue when representing clients in bankruptcy. The first step after your bankruptcy ends is to check your credit report. Your creditors are required to accurately report your information. However, many don’t. It is up to you to make sure creditors are doing what they are supposed to be doing after your bankruptcy discharge.

Second, sign up for credit monitoring so you know when your credit is tampered with.

Tips to improve credit score after bankruptcy

Receiving your bankruptcy discharge is a huge step toward your financial freedom and restoring your credit score. Hopefully, you are experiencing life debt-free! Unless you elected to keep certain debts, such as a house or car, your debts have now been legally removed. Creditors should not be bothering you, the financial stress is relieved, and you are excited about moving forward.

Again, congratulations!

Be sure to move forward with the full benefit of your bankruptcy discharge. Here are some useful tips to help you!

1. Credit Score.

There is a lot of misinformation out there about how to improve your credit score. If you do not do it the right way you could end up hurting your credit score. First, don’t be in a hurry to get new debt after your bankruptcy discharge. You don’t have to get a secured credit card or do anything more to improve your credit score. Don’t fall for this trap. It’s probably a credit card company telling you that you need to get a credit card to rebuild your credit. Keep in mind that it was credit that got you into debt in the first place. You don’t need credit to build your credit!

Second, your bankruptcy discharge is the single most important factor in improving your credit score. In fact, the best way to improve your credit score after bankruptcy is to just be patient. The more time that passes after your discharge the higher your credit score will go. You don’t have to do anything else.

65% of your credit score is 1) the amount of debt you have, and 2) the amount of debt you have that is unpaid or delinquent. Once the debt is gone, your credit score will go up very quickly.

2. Stay current on bills.

Your credit score also depends on staying current on future payments. If you have a car or house payment, stay current on these and all other payments going forward. If you have no debt payments going forward, then move on and don’t look back. Avoid new loans at all costs!

3. About letting someone else use your credit.

It’s hard to say ‘no’ to someone asking for your financial help, especially a child. For example, your son wants to go to college but needs you to sign for a student loan with him. Or your daughter asks you to co-sign on a car loan for her. They each promise to pay the monthly payment so you don’t have to. What do you do?

This is a very emotional issue that clients struggle with. Try to set your emotions aside. If you can deal with this situation from a financial standpoint, everyone will come out with a better understanding of where you are coming from.

If someone asks you to co-sign a loan it’s because their credit is not in good shape. If it was, why would they need your credit?  When you agree to vouch for another person, their credit becomes your credit! This means that if they do not pay on time it’s your credit that will take a negative hit. And if you filed bankruptcy to improve your credit, you may not have another chance to get your credit straight.

Only agree to co-sign for another’s loan if you can comfortably afford to make the payment all by yourself. You have to assume the other person will NOT make the payment, which happens quite frequently. If they do make on-time payments, then great. But be prepared to make the monthly if they cannot make the payment for any reason.

Here are some tips on whether you should co-sign for someone else:

1. Pre-apply for the loan. This way you know your interest rate. The interest rate is a factor in determining your payment.

2. Calculate the new loan payment. There are many loan calculators on the internet. With your interest rate you can plug in all the numbers and it will tell you your monthly payment.

3. Can you afford the monthly payment, even if the other person does not pay it? If so, perhaps it is okay to co-sign the loan. But be careful, you may have just bought yourself a car…

4. If you cannot afford the monthly on your own, perhaps you should decline to be the co-signer on the loan. You may also try for a smaller loan amount. Let your co-borrower know if the loan is too high, perhaps they will agree to a smaller loan amount. Don’t forget, it’s your credit at risk.

5. In fact, since it is your credit at stake (again!), I highly recommend that you make the payment to the creditor each month, and ask the co-borrower to pay you. That way you know the payments are being made. Do not rely on the co-maker to make the payment. One missed or late payment and your credit score is harmed (again).

6. Finally, if someone asks you to co-sign on a loan, then you should have some say as to the vehicle they want to get. You should never co-sign for an expensive vehicle – no way! If someone wants to get a high-end vehicle then that should be 100% on them, not you.

4. Review your credit report.

Filing your bankruptcy case and being granted a discharge of your debts is the most important thing you have done so far to regain your financial freedom. The second most important item is to review your credit report. In most cases, once you receive a bankruptcy discharge all is fine and you move on. But not always. You may have heard me say during one of our meetings that ‘I don’t trust creditors.’ I say it a lot, and for good reason. Creditors don’t always do what they are supposed to do. That’s true before you filed bankruptcy, and it’s true after you filed bankruptcy.

In fact, your creditors are required to report your bankruptcy discharge to the national credit bureaus. However, creditors don’t always play by the rules. If they don’t, your credit is damaged.

You may think everything is just great – until you apply for a loan and find out a creditor did not report properly to the credit bureaus. Why is this important? Your credit score determines the interest rate on your next car or home loan. In other words, your credit score determines your monthly payment!

This is something that most bankruptcy professionals overlook when your case is completed. At The Dolhancyk Law Firm, we know there is a great life after bankruptcy. Make sure you realize your full financial potential while protecting your credit!

If you’d like help after your bankruptcy case, let us know. We can run your credit report to verify creditors are doing what they are supposed to be doing.