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June 19th, 2008
Your credit score will decrease substantially after your bankruptcy goes through, but you can always improve it over time. Although it may take years of patience and attention to bring your score back up to what it once was, the benefits are well worth it. Your main goals should be to limit your use of credit and pay each of your bills in full on time. There will be plenty of companies willing to offer you loans after bankruptcy, but the interest rates such lenders offer are, typically, quite substantial. There are several ways to get started on your path to credit recovery.
Secured Credit Cards
Opening a secured credit card is a simple and inexpensive way to begin building credit again after your bankruptcy. They are used like any other credit card. The downside is that you’ll have to put down a deposit, which generally is upwards of $200, with your application. Moreover, the interest rates on secured credit cards have much higher interest rates than an ordinary card– 14% and up– and charge an annual fee. Nonetheless, these cards can be a great way to improve your credit score after bankruptcy, if used responsibly.
Other Credit Cards Options
In addition to secured credit cards, many lenders will be willing to offer you unsecured cards. Here’s the rub: These “second chance” cards have much lower credit limits, higher interest rates, and hefty annual fees. You do, however, avoid the deposit required for a secured credit card. Make sure that you keep your balance low and you’ll see your score climb little by little over time. It’s also important to note that having multiple credit cards isn’t always looked down upon by the credit bureaus; it’s the debt to credit availability ratio that matters most.
Things To Look Out For While Rebuilding
One of the most important ways to keep debt in check and increase your credit score is to keep the balances on any cards you have at around 30% or so of the limit. Also, when you file for bankruptcy your mortgage history isn’t reported accurately to credit bureaus any longer, making it look as if you haven’t made your payments on time– which can further damage your ailing credit score. You can either (a) attempt to get a Verification of Mortgage (VOM) from your lender, or (b) refinance your mortgage with an entirely new lender. One last piece of advice: After your bankruptcy you will receive gobs of credit card offers from lenders, but don’t go overboard; and, although you may have been burned by credit cards in the past, don’t fool yourself into believing that you’ll never need credit again– it affects insurance and loan rates, job applications, and much more. Be responsible and you’ll be back on your feet in no time.
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