Repairing your Credit

Contrary to common belief, your credit does not die with the bankruptcy. Your debt goes away but your credit lives on. Despite the fact that during the bankruptcy your credit score takes a downturn, in most cases, 12 months after the bankruptcy the credit score improves. What you do after the bankruptcy is vital to repair your credit.

First and foremost, the best thing you can do to repair your credit is to stay on top of all your current payments. These usually include your mortgage or rent, your car, if you kept it and, all your utilities. In turn, a very important step to accomplish this is to prepare a concise budget of all your expenses. Be realistic about them. If you have a family of 4, your monthly groceries expenses are not $80 dollars. The national averages for the groceries of a family of 4 are around $750. Do the same with all your other expenses. When in doubt, you can consult the “National Standards” that are available in the IRS website. Something that also helps is to carry a small notebook for a week and write in it all the things you spend money on, no matter how small. So, if you buy a chocolate bar in the vending machine, write it down: “Chocolate Bar = 85 cents” and so on. You will find that in one week, you may be spending $40 to $60 in miscellaneous and incidental expenses. This can add up to over $3,000 in a year!

Chances are that you are considering bankruptcy because you have spent more than you earned. For example, if the budget shows that you are in the negative every month by as few as $200 a month, which amounts to $2,400 a year. Then you will ask yourself: How have you been able to make ends meet all this time? Most likely you were using your credit to make up for the difference. Over time this amount accumulated and caused you to file the bankruptcy. The point is that, the accumulated total is the effect, but the cause is the negative balance in your budget. The bankruptcy takes care of the accumulated total but, if you do not solve the budget deficit, it will accumulate again and you will be back into bankruptcy. No process can solve your budget problem, only you can do this. Take advantage of the bankruptcy’s clean slate and balance your budget.

Secondly, you will have to review your credit report after the bankruptcy. What you need to do is check that everything that was supposed to be discharged is actually discharged and not hurting your credit score further. Once the Court orders the discharge, your creditors have to comply with the order and discharge your debt. You confirm that they complied with the Court’s Discharge Order by going through your credit report. Some companies offer a “Post Discharge Dispute of Consumer Liability Report”. This is like a credit report made especially for persons that had filed for bankruptcy to help them precisely, do this, make sure their report of clean of the discharged debt.

If you find anything that is not supposed to be there, you will have to tell the credit reporting agencies and dispute it with the creditor. This can take from a couple of weeks up to a month. You can do more than one dispute at once but if you do too many at the same time, your credit report may freeze because the credit reporting agencies will not be able to compute your credit score. So, you should de a few at a time or, do them all at once and wait for a couple of months.

Finally, if you reaffirmed any debt during your bankruptcy, this will be reported to the credit agencies and start repairing your credit. If you do not keep any credit accounts through your bankruptcy and you need to repair your credit faster, you may have to open new credit accounts. Surprisingly, there are many bankruptcy friendly institutions that will grant you credit, despite a recent bankruptcy. Beware thought of predatory lenders and creditors. Since you will not be able to file another bankruptcy for years, they will take advantage of that to harm you. Once more, beware!

If you are not able to obtain an unsecured credit card, then a secured or pre-paid credit card will work too. You may pay higher interests at first, but you must have in mind that the extra money you may be paying in interests is a means to an end. You will be repairing you credit faster and this higher interest credit card is one of the tools for you to accomplish this. Keep the balance low, preferably to the level you can pay it off every month. Again, if you stay on top of your payments, eventually you will be able to get better deals in credit card interest rates and credit approval.

By following these simple steps, you will be on your way to repairing your credit. In time, your credit score will improve. Just, one final advice: Keep your eye on the money.

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