One of the primary concerns people have when they file a Chapter 7 or Chapter 13 is how their filing will affect their credit score. The truth, however, is that in most cases your credit score is already damaged by past due payments and defaulted loans. Thus, when you file for bankruptcy, the negative impact is minimal. This is especially true in comparison to the benefit of eliminating the majority of your debt and obtaining a fresh financial start. Also, when your bankruptcy case is completed, you can start improving your credit score. Below are a few tips:
- Credit report. After you receive your discharge order, you should request a free copy of your credit report to verify that the debts are properly noted as being discharged. If you discover errors on your credit report, you should immediately dispute them with the report agency. You cannot improve your credit score until you ensure that your report is accurate.
- Credit cards. It may seem counter-intuitive to obtain a credit card after emerging from bankruptcy, but you have to have credit in order to rebuild your credit score. It is important that you are responsible with your new credit accounts and only open a select few. You must pay your bills on time and, if you are unable to do so, do not use your cards. Your credit score can be improved by having open accounts, even if you are not using them. Lastly, not all credit cards are treated the same when it comes to credit reporting. The major cards (such as Visa or MasterCard) provide more benefits than department store cards.
- Secured credit cards. It may be difficult to qualify for traditional credit cards when you first emerge from bankruptcy. If this is the case for you, consider obtaining a secured credit card. This type of card requires you to make a deposit with the cardholder, which is typically 100% to 200% of the total amount of the line of credit extended to you. As long as you timely make your credit card payments, the deposited money will not be touched by your lender.
There are several other ways you can rebuild your credit post-bankruptcy, but the most important thing is to learn from your past mistakes and be financially responsible. With patience and hard work, you will see your efforts payoff with your credit score.
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