If you’re concerned about how bankruptcy will affect your credit score, consider what will happen if you don’t deal with unmanageable debt sooner. A lot of people put off filing for bankruptcy for a long time because they fear the impact it will have on their credit. Unfortunately, this risky strategy can pull people even deeper into debt and a more precarious financial position than they intended.
Bankruptcy isn’t ideal, but it can be an important lifeline when you need it most. Although it’s true that your credit score will take a hit when you declare bankruptcy, that impact won’t last forever. In fact, its effects can lessen over time when you take the right steps toward improving your credit score after bankruptcy.
Know What Your Credit Report Says
If you’re trying to rebuild your credit, it’s helpful to know what your credit report says. Your credit report is a summary of all of your accounts with creditors and how you’ve handled your debts.
It might not look pretty after bankruptcy, but that’s not the point. Knowing what your credit report looks like after bankruptcy gives you an idea of where you’re starting on your credit-building journey and allows you to assess your progress as you go.
Keep in mind that hard pulls on your credit report – such as those lenders do when you apply for credit – can have negative consequences for your credit score. Soft pulls are preferable because they won’t impact your credit score.
You should reserve hard pulls only for when you’re attempting to acquire new credit – which is possible! – and when you know your odds of success are high.
Consider Getting a Secured Credit Card
It can be hard to find a credit card company willing to take you on after bankruptcy. Unless you know where to start, you risk incurring a lot of hard pulls on your credit report and credit denials to boot.
It might seem impossible to get a credit card after bankruptcy, but it’s not. Many people who complete bankruptcy begin to rebuild their credit score with help from a secured credit card. This card works like any other credit card except that it requires a deposit and may have a lower line of credit than you’re used to having.
The good news is that these cards are built with people with damaged credit in mind, particularly those who have just arrived on the other side of bankruptcy and need help getting started again.
Apply for a Credit-Builder Loan
Another financial tool you can use to repair damaged credit is a credit-builder loan. This type of loan works oppositely compared to a traditional loan. Whereas money is provided upfront with a traditional loan, you make fixed payments toward a credit-builder loan and gain access to the case once you complete the loan’s term.
In a way, a credit-builder loan lets you kill two birds with one stone: build a small savings and improve your credit.
Learn How to Budget Better
Not all people who end up in bankruptcy are bad at budgeting – unforeseen circumstances such as a job loss or medical emergency are proof of that – but it never hurts to learn how to budget better.
The fact is that your financial situation is very sensitive once you come out of bankruptcy. You can’t afford to make a mistake, so why leave things to chance that you can control, such as your budgeting skills!
By learning how to make the most efficient use of your money, you can learn how to make each dollar stretch as far as possible. You can even learn important concepts and skills that you can use to build wealth and cushion yourself from future financial hardship.
We Can Help with Bankruptcy
It can be discouraging to think about the immediate aftermath of bankruptcy, but to do so is to overlook the fresh start you can gain. Rebuilding your credit score and coming out of financial hardship is possible after bankruptcy, and securing debt relief is the first step to take.
If you want to learn more about your options in bankruptcy or how an experienced lawyer can help, contact Buchalter & Pelphrey Attorneys At Law today.