How to rebuild your credit after bankruptcy

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Bankruptcy can provide financial relief, but the downside is that it can negatively affect your credit. While bankruptcy will remain on your credit report for as long as 10 years, the impact will lessen over time. Whether you’ve filed for Chapter 7 (meaning you have the option to pay off your debts) or Chapter 13 (you’re required to pay your creditors all of your disposable income), it’s possible to start rebuilding your credit with a few simple steps .

Rebuilding your credit after bankruptcy as an entrepreneur can be challenging, but not impossible. The first step is to understand that rebuilding your credit takes time and consistent effort.

How bankruptcy affects your credit

Payment history is one of the most important factors in determining your credit score. When someone files for bankruptcy, that person will not repay the debts incurred in full according to the original loan agreement. This means that filing for bankruptcy can have a serious negative impact on someone’s credit score.

A bankruptcy filing will show up on a person’s credit report for up to 10 years, making it harder to get a loan or loan in the future. An entrepreneur may also find it difficult to obtain credit from suppliers or vendors as they may be hesitant to grant credit to a company that has filed for bankruptcy.

Regardless of the type of bankruptcy, lenders will see it on your credit report in the public records section, and it will likely be a deciding factor. After the legal process is complete, it will indicate the bankruptcy and included debts that have been written off.

However, it is important to remember that filing for bankruptcy can also give an entrepreneur a fresh start, allowing them to pay off their debts and start fresh.

When applying for a loan, lenders may not approve certain types of loans – and even if they are approved, a person may find that they are being offered higher interest rates or other unfavorable terms.

Related: How this entrepreneur achieved his greatest success after his worst failure

Can I get a credit card after bankruptcy?

It may be difficult for an entrepreneur to obtain a credit card after filing for bankruptcy. Many lenders view people who have filed for bankruptcy as being at higher risk. However, it is possible to obtain a credit card after bankruptcy, but it may take some time and effort.

The best approach is to apply for a card specifically designed to rebuild your credit. The ideal card option is a secured credit card – approval is possible even in the case of a recent bankruptcy. Secured cards typically have a credit limit equal to the amount of margin provided.

However, some unsecured card issuers won’t get a credit score or may extend a line of credit even if there are blemishes in someone’s credit history. Just remember that these types of cards tend to have very high rates and lots of fees. A secured card is probably a better option at a lower cost.

The best ways to build credit after bankruptcy

As soon as bankruptcy is finalized, the entity can begin work on building credit. Here are some of the best ways:

Keep payments in non-bankruptcy accounts

After submitting your request, determine if any accounts have been closed. While bankruptcy cancels most debts, some may remain. Paying off these balances can lower your debt-to-income ratio – timely payments remain crucial. Consistent payments will also help keep your bills under control.

Keep your credit balances as low as possible

Not only do credit balances affect your credit utilization rate, but depending on how the need to file for bankruptcy has developed, people should try to avoid the same habits. Limit your credit card use and pay off balances – this will benefit your financial health.

Build emergency savings

Save some money each paycheck to build up your emergency savings. This will provide a fund for unexpected expenses, which will help you avoid taking on debt in the future that could make it harder to rebuild your credit.

Get a secured card

As we mentioned above, a secured credit card can help you rebuild your credit. While a security deposit is necessary, each time a repayment is made to your card account, it will be reported to the credit bureaus. This will demonstrate responsible credit behavior.

Some secured card issuers allow cardholders to upgrade to an unsecured card after consistent and timely payments. This is a great benefit as you won’t need to apply for a new card once your credit situation starts to improve.

Consider credit building loans

A credit loan can be another way to help build your credit. The individual will need to have a certain amount of money held in a secured savings account, but the individual may make monthly payments until the loan amount is repaid. Depending on the lender, it is also possible to have a secured loan, which allows you to borrow against savings.

As with a traditional loan, payment activity on a credit building loan will be reported to the main credit bureau, which will help improve your credit score over time.

Related: I filed for bankruptcy at age 21

How long does it take to improve my creditworthiness?

This will depend on the individual’s specific circumstances, but if someone is making consistent payments and has a low credit utilization ratio and a low debt-to-income ratio, they should start to see positive changes in their credit score after about six months.

However, be prepared for a long-term approach. Remember, bankruptcy will be on your credit report for seven to 10 years. While the effects will wear off over time, responsible behavior will lead to improvement. Be patient.

Related: 6 steps resilient entrepreneurs take to get out of bankruptcy

Can I get a mortgage after declaring bankruptcy?

You don’t have to wait until bankruptcy is off your credit report to apply for a mortgage. However, if you are applying for a conventional mortgage, an individual will have to wait at least four years after filing for bankruptcy. If there are external circumstances, it may be possible after two years.

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