Filing for chapter 7 bankruptcy can provide you with relief from the majority of your debts. At the same time, it can damage your credit score. While this process can hurt your credit, the damage is not irreparable. Taking the proper steps can help you bounce back from bankruptcy in a reasonable amount of time.
Function
Rebuilding your credit scores after bankruptcy is important so that you can be approved for credit in the future. When you have a bankruptcy on your credit report, lenders will be hesitant to lend you money. If they do lend you money, they will charge a higher interest rate than what they would charge another customer without a bankruptcy. Building your credit score to a higher level can help you be approved for financing and save money on interest.
Time Frame
A Chapter 7 bankruptcy judgment will remain on your credit report for as long as 10 years. That does not necessarily mean that your credit will be ruined for that long. You can start rebuilding your credit immediately after filing for bankruptcy. It may take two or three years to get your credit back to an average level, but you should start the process immediately after bankruptcy begins.
Types
To rebuild your credit score after a bankruptcy, it helps to have multiple types of credit accounts. If you can combine installment accounts with revolving credit accounts, this will help you boost your score quickly. For example, a car loan or a mortgage is considered to be an installment account. A revolving account is a credit card or a store account. You may not be able to get an unsecured credit card immediately, but you can get a secured credit card that reports to the credit bureaus.
Credit Use
When you are trying to rebuild your credit, use your credit accounts lightly. Many people who have filed for bankruptcy are scared to use their credit again because they believe they will get in trouble again. If you can make small, regular purchases with a secured credit card and then immediately pay off the balances, this will help your credit score significantly. The credit card company will report this action to the credit card bureaus.
Considerations
When you are rebuilding your credit score, the most important factor is making your payments on time. Many people who file for bankruptcy got in the habit of skipping payments on their accounts, which can significantly hurt your credit score. If you want to rebuild your score, making payments every month without fail will make a big difference. Pay your installment loans and your revolving credit accounts every month.
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