Rebuilding your credit is the 800-pound gorilla that you would have to face. You're lucky that filing for bankruptcy doesn't carry the same social and financial shame that it did ten or twenty years ago. "Filing is a safety valve," says Roger M. Whelan, resident scholar at the American Bankruptcy Institute, a professional organisation that is not for profit. "Thank God, gone are the days when it was like having a bright star on your head."
But rebuilding your credit is a double-edged sword for people who have just gone through bankruptcy. You are where you are now because you didn't take care of your credit well. But this doesn't mean that you should stay away from credit from now on. At first, you might have to because you don't have much choice. But sooner or later, you realise you need credit to get your finances back on track.
So, what's the deal? The best part is that there are no rules. It doesn't matter how fast or slow you do it. Depending on how much money you have and what kind of bankruptcy you filed for, the factors can be very different. For example, if you filed for bankruptcy under Chapter 13, the mark will stay on your credit report for five to seven years. If you filed under Chapter 7, on the other hand, the bankruptcy could stay on your credit report for a longer time, like up to ten years. During that time, it will be very, very hard for you to get credit, let alone try to turn your bad credit into good credit. Still, you have to rebuild if you want to get back into the money game.
Now, if you make a lot of money, it's clear that you'll have a slight edge over the other people. But only a little. If you were able to keep your house, making your mortgage payments on time will help your credit score. But keep in mind that'many apartments don't report to credit bureaus, so those payments will keep a roof over your head but won't help you rebuild your credit,' says John Ulzheimer, business development manager for MyFico.com, a division of Fair Isaac Corp., the company that created credit scoring.
Chapter 7 filers usually have a hard time getting new credit, but they are also the ones who usually have the best chance of rebuilding their credit. Henry Sommer, an attorney and author of "Consumer Bankruptcy: The Complete Guide to Chapter 7 and Chapter 13 Personal Bankruptcy," says, "While you're in a Chapter 13 (reorganisation), your credit options are somewhat limited." This is because you can't really try to get new credit without first getting permission from the court.
On the other hand, if you file for Chapter 7, all of your debts are forgiven and you have more freedom in that area. The sooner you pay off your debts, the sooner you can start fixing your credit score.
Tip #2: Have a positive outlook and show what you've learned.
After filing for Chapter 7 or Chapter 13, experts on bankruptcy say that your attitude and how hard you work can make a difference in your life. Ulzheimer says, "The consumer who jumps back in is the one who will get better faster." Professor of consumer economics and family finance at Iowa State University Tahira K. Hira says, "Financial capacity is one thing." "The other thing is mental or emotional strength."
So being positive can make all the difference in the world.
Hira says that if you save money, don't have any debts, and have an emergency fund, you're saying, "Look, I can control my actions." "It depends on how good you are at selling and how good you have been in the past." And, of course, by "behaviour," she means how you handle your money and how you handle your bills and other financial responsibilities. The most important thing is to pay your bills on time. It's also the easiest way to show your lenders that you've learned from your past financial mistake and are doing everything you can to make sure it doesn't happen again. In short, you have to be a good citizen when it comes to managing your money. Are you up to it? Of course, you can! And this is the only rule to follow: Shop for lenders.
Hira says, "There will be a cost, and that cost will be higher interest." This gives you even more reason to be picky about the lenders you choose. Don't just take out the first loan you see, only to find out that the interest rates are too high. Don't let someone pressure you into paying high interest rates when you can get a loan with almost the same terms for less. Compare lenders. You are the customer, and you still have the advantage of having choices.
