04-Jul-2018 written by : FSI-Team
No one should ever have to go through something like bankruptcy. However, life is unpredictable, and when the bad comes to worst, then the only way out of a financial crisis is often through the declaration of bankruptcy. This can solve the problem to a large extent. But what about your credit profile?
Your financial history, including late payments, name on loan defaulter list, and also bankruptcy are mentioned in your credit report. However, the instance of bankruptcy alone can serve as a major red flag for your lenders for many years to come, which means you can’t get approval for loans, credit cards, etc.
The harsh truth about bankruptcy and credit report damage is that there is no shortcut for damage control. In other words- you can’t simply wipe off the bankruptcy details from your free credit report. This is because with the most credit rating agencies, information like this gets removed automatically in 5-10 years. However, the good news is that there are ways to speed up the process and establish a high creditworthiness sooner.
There are various ways to push your endeavours towards high credit score, such as:
Using a credit card is one of the most highly recommended methods of credit experts for credit building and credit recovery goals. Thus, there is no reason why it won’t work for your bankruptcy-affected credit report.
You can easily improve your creditworthiness by using a credit card smartly. In that regard, the following are some of the key points to remember:
Merely using a credit card won’t help you if you are often late with the payments of bills. This is because every late payment is harmful to your credit score, and since your situation is already quite sensitive, you can aggravate it further by failing to take the clearance of payments seriously. Instead, you should strive to be as timely with the bills as possible to reach a high score in your paid or free credit report.
If you are charmed by the concept of minimum payments in which you can get away with paying just around 2% of a particular month’s bill, then you really need to understand something. While these minimum payments do save you from the penalties and extra charges, they can lead to high debt accumulation because they carry forward your balance to the next month. So, if make minimum payments many times in a row, then within a few months your debt can become too high which is bad for your credit score. You also risk your name making it to the loan defaulters list.
It can be challenging to get a loan after you have defaulted recently. Naturally, banks would be highly averse to lending you money after checking your records. However, you must get a loan along with a credit card to improve credit variety which helps in building a high score faster.
Since it can be difficult to get an unsecured loan, what you can do is offer a collateral, a car, gold, stocks, etc. as security. This should help make the process less “challenging”. Plus, if you have a few months worth of credit card payment history that looks good, then it can give you some leverage too.
It may seem like a good idea to close all your old bank accounts to manage your finances easily especially after dealing with bankruptcy. However, that’s the last thing you want to do in the interest of your creditworthiness.
Your oldest accounts make the biggest contribution towards your credit score. So, if you have to, then you should close the newest accounts first.
Bankruptcy, as challenging and difficult as it is, is not the end of the world. All you have to do is to be patient and take the right steps. If you do that, you can be assured to see great improvement in a short period.