Many people worry they will never achieve a good credit score after filing a Chapter 7 or Chapter 13 bankruptcy in Massachusetts. The truth is that filing for bankruptcy relief can help you rebuild your credit rating. By eliminating debts you cannot afford to pay, you give yourself a solid foundation for rebuilding credit after bankruptcy. Our New Bedford bankruptcy attorney provides this step-by-step guide for rebuilding credit after bankruptcy.
Steps for Rebuilding Credit After Filing Bankruptcy in New Bedford, MA
While everyone’s situation is different, most individuals can improve their credit score by taking the following steps after completing a Chapter 7 or Chapter 13 bankruptcy case:
Review Your Credit Reports
You are entitled to free copies of your credit reports once every 12 months. Review each report to ensure that accounts discharged through your bankruptcy have a zero balance. Report any errors to the credit reporting agency and the creditor. Follow up to ensure the account is corrected. Reviewing your credit reports once a year is wise to ensure the information is correct.
Create a Monthly Budget
While preparing your bankruptcy forms, you created a budget using Schedules I & J. However, you need an updated budget that reflects your current financial situation. Creating and sticking to a budget is essential for improving credit ratings after bankruptcy.
A budget helps you avoid overspending. It also allows you to analyze your spending habits to look for areas where you can cut back. Budges also help you set goals, such as saving money for a new vehicle or a vacation.
Many free budgeting tools are available online, including apps for your phone, which make it easy to create and use a budget. You can use the information you received during your required bankruptcy courses or find another system that works best for you.
Build an Emergency Fund
A common reason people file for bankruptcy is an emergency or unexpected expense that causes a financial crisis. Creating an emergency fund helps you avoid using credit when something goes wrong. Include an amount in your monthly budget and “pay” your emergency fund just as you would pay any other bill.
Pay All Debts Before the Due Date
Your payment history makes up 35% of your credit score. The amount you owe is the second highest category, with 30 percent. Your bankruptcy should have wiped out most or all of your unsecured debts, thereby decreasing the amount you owe. Therefore, make all future debt payments on time to avoid harming your payment history.
Work to Rebuild Your Credit History
It takes time to rebuild your credit score. However, many bankruptcy debtors see an improvement in their credit score within a year after filing bankruptcy. The improvement depends on many factors, including your credit score before filing for bankruptcy.
Additional ways you can improve your credit score include:
- Apply for a secured credit card to begin rebuilding a positive credit history
- Become an authorized user on another person’s credit card account who has a good credit rating
- Ask credit reporting agencies to report other payment information, such as rent and utilities, to strengthen on-time payments
- Apply for a regular credit card, but keep the balance low and pay it off within two to three months
- Purchase reasonably-priced furniture or household appliances through a company that reports payments to the credit reporting agencies
It is crucial that you do not overuse credit after bankruptcy. It is easy to get back into debt. Only apply for debt and use credit you can afford to repay within your budget. If your budget does not allow for a monthly debt payment, saving money for the item is better than going into debt.
Learn How Filing Bankruptcy in Massachusetts Can Help You Get a Fresh Start
Our New Bedford bankruptcy attorneys at Logan A. Weinkauf, P.C. help you determine whether filing bankruptcy is your best debt relief option. We prepare and file all bankruptcy forms and appear with you in bankruptcy court. Get rid of debts you cannot pay by exploring options to file a Chapter 7 or Chapter 13 bankruptcy case.