Saturday, October 18, 2003

How to Build Credit After Declaring Bankruptcy

How to Build Credit After Declaring Bankruptcy

Declaring bankruptcy is one of the most damaging things you can do to your credit score. According to Consumer Credit Counseling Services of St. Louis, a bankruptcy can lower your credit score by 100 points or more. Plus, bankruptcy remains on your credit report for up to 10 years for all potential creditors to see. However, all is not lost. You can begin immediately rebuilding credit after a bankruptcy by responsibly using the credit you have and can get.



    Stay current on any debts that survived bankruptcy. Some debts, such as student loans, can't be discharged in bankruptcy, so to rebuild your credit, it's important that you keep these accounts current by paying on time and paying at least the minimum payment due. Positive credit history is a significant part of your credit score, and staying current on debts that precede your bankruptcy can help boost your score.


    Get a credit card. Most people, even after a big financial setback such as bankruptcy, can qualify for a credit card. A good option may be a secured credit card, in which you put down an initial deposit and you can't spend more than that amount. Liz Pulliam Weston, a personal finance columnist for MSN Money, says to make sure you get a card that reports to credit bureaus and has no or low fees.


    Use the card lightly to help build credit. Pay for regular expenses such as gas and groceries--items you would otherwise pay cash for--with your credit card. Using your card for everyday items ensures you have the money to pay your bill and are not overspending.


    Pay your credit card bills on time. Payment history makes up the biggest portion of your credit score--35 percent, according to you can damage your credit score the most by being late on payments. It's good to get in the habit of paying several days in advance to ensure your payment arrives on time. Though your credit score won't get dinged for payments that are a few days late, the credit card company will charge you a fee if your payment is even a day late.


    Pay your bill in full every month if possible. Amounts owed make up 30 percent of your credit score, so it's best to carry as small a balance as possible. By paying the card off every month, you will not only keep your amounts owed low, but you will also avoid interest charges.


    Get an installment loan. Pulliam Weston, the MSN Money columnist, says you can rebuild your credit faster by having an installment loan such as a car or home loan than just by using credit cards. She says many people can qualify for these loans a few months after bankruptcy; however, be prepared to pay high interest rates. And don't get a loan just for the sake of it. If you don't need a new car, don't buy one simply because you can qualify for credit.


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