Restoring Your Credit after Bankruptcy
Repairing Credit in Michigan
One of the very reasons why so many people struggle with the decision to file for bankruptcy is because they are afraid of what will happen to their credit if they file. First of all, it's important to realize that before most people file for bankruptcy their credit has already been damaged. It's not uncommon for people to be extremely delinquent on their credit cards or medical bills to the point where the creditors have charged them off, and it's not uncommon for peoples' vehicles to have already been repossessed prior to filing. In cases such as these, the damage has already been done.
Don't let fear over what will happen to your credit bar you from filing for bankruptcy if you would truly benefit from doing so. Contrary to popular belief, it can be far easier to rebuild one's credit following a discharge than if one chose not to file at all, or if they let the debt sit there and accumulate interest and penalties, or if the person chose to slowly chip away at it over a number of years.
Credit Cards are Your Friend
Once a bankruptcy is discharged, you have to realize that credit cards are your friend, not your enemy. Even if you've sworn off credit cards forever, it's important to understand that when it comes to reestablishing your credit, not only are they your first step, but they are your best friend.
Fortunately, there are a number of secured credit card offers and other credit card offers that give people a second chance. While your initial balance will be low, and your interest rate high, you can still shop out cards and compare offers over the internet. However, as long as you pay off your balance every month, you won't have to worry about paying interest.
It's recommended that you get two or three of these credit cards, keep your charges to less than 20 or 30 percent of the credit line (this shows creditors self-control), and pay all or most of the balance off each and every month. After demonstrating good payment habits and exercising self-restraint, you can anticipate getting credit line increases and becoming a more attractive consumer for better credit card offers in the next year or two.
Tips for Improving Your Credit Score
Going about rebuilding your credit is very similar to establishing good credit in the first place. If you wish to restore your credit as quickly as possible following a discharge, it's important to adhere to the following principles:
- Make sure you have a regular and steady source of monthly income coming in.
- Make a budget and stick to it.
- Save at least 10 to 20% of your paycheck for a rainy day.
- Don't live beyond your means.
- Try to remain as stable as possible, especially maintaining a residence at one place for a significant period of time if you can (this makes you appear stable to potential lenders).
- Very important – pay all of your bills on time!
- Keep your credit card balances low, maxed out credit cards are not a good thing.
- Determine what got you into this situation and take the necessary steps to ensure history doesn't repeat itself.
By maintaining a regular and steady source of income, developing a sound budget and sticking to it, and by taking out credit cards and maintaining a very low balance and paying all your bills on time, you can put yourself on the right track to restoring your credit in no time.
For those who actively work to restore their credit following a bankruptcy discharge, they can often get auto loans and even home loans within two to three years after a discharge. It just takes a good work ethic and discipline to restore your credit once more. The good news is that since you can't file bankruptcy again for a number of years, many lenders may find you a more attractive borrower now than if you still had all of that debt counting against your debt to income ratio.
Small Changes Reap Big Rewards
For some people, finding balance in their budget so they can be solvent comes down to making some changes in their spending habits. Such changes may include buying the black coffee from Starbucks instead of the Iced Mocha, or brown bagging lunch instead of eating out every workday. Or, it may involve clipping coupons or buying generic instead of the name brand. Every little bit counts and sometimes these minor changes can add up to a huge savings, and more available money to put aside for that rainy day that hopefully never comes.
To learn more about credit restoration, please contact the Hensel Law Office, PLLC to schedule your initial consultation with our Michigan bankruptcy attorney.