Rebuilding credit score after a bankruptcy

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Emerging from bankruptcy might seem like an uphill battle to you. Filing for bankruptcy has a serious hit on your credit score and leaves a negative mark on your credit report for some years. Chapter 7 and Chapter 13 bankruptcy remain on the credit report for 10 years and 7 years, respectively. In many states, even the auto insurance rates increase because of a low credit score.

A low credit score does adversely affect the financial aspects of your life, but you can still work towards re-building them. Given below are 7 tips that can help you in improving the credit score, after declaring bankruptcy.

1. Make sure that you always make timely payments of your complete balance. Otherwise, late payments will stain your credit report for 7 years.
2. Use a secured credit card. You will be asked to make a deposit to act as collateral. This deposit will be returned to you, once your credit score gets improved or you close your account. Making timely payments will eventually make your credit score better, and this will make you eligible for getting a new credit card, having better features and rewards.
3. Showing regular and timely payments will have a good impact on your credit score. So, try to use your credit card at least once every month.
4. Multiple credit applications might decrease your credit score and will also increase the risk of overspending. Thus, keep only one credit card in use.
5. Your credit utilization should be low. It is the ratio of your balance to the credit card limit which should preferably be under 30%. So, in case, you have a credit limit of $1,000 each month, then you must not spend more than $300.
   Individuals, who are coping with Chapter 13 bankruptcy, can maintain a low credit utilization by getting a retirement plan loan. Such loans usually have a low rate of interest and credit bureaus don’t get to know about them. It should certainly be small enough to be easily paid back within 5 years, as unpaid balances are considered an early retirement distribution and are subjected to penalties and taxes.
6. Credit bureaus like it when you exercise restraint. So, keep your credit limit higher, since, though a lower credit limit may feel safer, it will eventually cause a rise in your utilization of credit. For example, your credit limit is $1,000 and you spend $400, then your credit utilization will be 40%. On the other hand, if your credit limit is $500, and you spend $300, the credit utilization will double to 80%, and this won’t impress the credit bureaus.
7. Open a savings account that will aid in making bill payments on time by setting up automatic payments. You can also create a small emergency fund. Making a budget, to properly understand and keep a track of the spending habits, will be an effective way for you to improve credit score.

Keep in mind that credit bureaus can also make mistakes. So make sure that you get a no-cost copy of your credit report and check it for any possible errors. There are chances that you might have been mixed with someone else with a similar name, or the report still shows the status of your closed accounts as open. Even identity theft can cause possible errors in your credit report. Such common mistakes can be corrected, and this will also improve your credit score immediately. So, it’s better to check the credit report consistently.

You can learn more about ill-effects of filing bankruptcy on the debtor’s credit score and ways to rebuild them by consulting one of the most experienced bankruptcy attorneys of Los Angeles, Dallas, TX, either at Recovery Law Group or at 888-297-6203.