A bankruptcy discharge provides major financial relief that helps debtors gain back their financial footing. Then, with fewer bills looming each month, most debtors are better able to manage monthly expenses. That’s the good news.
The bad news is that lenders and credit card companies, for a while, will not consider you a good financial risk and may only sparingly lend money should you find yourself in a financial hole again. A bankruptcy may stay on your credit record for up to 10 years, and if you accrue massive debt again, you will not be able to file another Chapter 7 bankruptcy petition for 8 years.
More good news …. You can build credit again by using credit responsibly. Once you have filed for bankruptcy, credit card companies have the right to automatically cancel your credit cards—even if you did not include them in your bankruptcy petition and intended to keep using those accounts.
REBUILDING CREDIT HISTORY
Begin to re-build your credit history as soon as possible. It may take at least two or more years before you obtain an above-average credit rating again. You can get a start by finding a bank that will issue you a “Secured Credit Card,” which works kind of like a bank account. You give the bank the amount of money you wish to tie to a credit card, while the bank watches your credit behavior. As you use the card to pay a bill or bills, and pay the bank on time each month, you will begin rebuilding your credit worthiness. When the bank sees that you are managing your monthly payments on time, your bank may even provide you with a small amount of additional bank credit ($100, $250, $350 or $500) above your own investment. If you continue to pay bills in a timely manner, your bank credit will increase — and so will your credit rating.
When choosing a Secured Credit Card, make sure the bank will report your credit behavior to the three credit reporting agencies: Experian, TransWorld, and Equifax. As those credit agencies receive word of your good credit behavior, they will begin to elevate your credit score. When your score goes up, you will have more access to credit.
BECOME CREDIT WISE
Just because you’ve earned more credit doesn’t mean you have to spend it. To manage credit wisely, use your secured card for necessities only, such as monthly utility bills that you would need to pay whether or not you had the credit card.
Avoid using your secured card for luxuries such as dining out or the latest fad in technology. By committing that your credit card spending will be only for true necessities, you will avoid the temptation to spend beyond your means. Over time, your new spending strategy will become a good financial habit, and you will rebuild your credit one step at a time.