There are two major ways to file for a bankruptcy. These two ways consist of eliminating all the debt or paying back some part if. If you have filed for chapter 7 bankruptcy, you don’t need to repay anything and your debt will be removed completely. Chapter 13 is where a part of that debt is repaid. Regardless chapter 7 or 13, the fact is that there will be negative impact on your credit score once you have filed bankruptcy.
In most of the cases, your credit score will reflect this negative impact for 10 years and then the bankruptcy will be discharged. What we will discuss here is how you can improve your credit score after filing bankruptcy.
It is very difficult to get any kind of financing following a bankruptcy. But does that mean that a person is doomed for life and his financial life is almost over? The answer is simple which thankfully is “NO”. You can start building your credit score back up while the effects of your bankruptcy last on your credit report. One of the major ways a credit score can be improved is by using secured lines of credit.
Once you have filed bankruptcy, what you need to do is to start saving some money. I can be $10 every month to $100. The point is to safe as much as you can without worrying about the amount. Let me explain. Secured lines of credit are where the lender allows a credit account to be active even after bankruptcy, provided that the maximum amount of the credit is being protected by an equal amount from your own funds.
Suppose that you want $3000 credit line, you will have to deposit $3000. What it does is that it removes the risk to the lender that if you default again, they’ll have their money safe. Why get a secured line of credit when you already have that amount safe in your bank? Well, this is to simply build up your credit score. Many people say that if I could save money, I would not have filed for bankruptcy. What you should know is that once you have filed for bankruptcy, you are out of debt and you don’t need to pay back anything anymore. You now have some breathing space and the ability to use the amount you use to pay for debt to be used as your monthly savings. Like I previously mentioned, you have got to start saving regardless how much you safe. Sooner or later, you will have enough money to apply for a secured line of credit.
Think of it as a wonderful opportunity of building up your credit score again. The lender is not running high on risk and neither there is a high amount of money at stake. Over time, a secure line of credit will improve your credit score substantially once you have made a number of payments on time.
After 2-4 years, you will be eligible to apply for another loan; such as a home mortgage loan or an auto loan. If you have been working on improving your credit score over these couple of years, then this improvement will definitely be reflected on your credit report which will significantly increase your chances of getting approved for comparatively larger loans.
The repercussions of the bankruptcy will still be there. You’ll probably be required to pay high down payments or high interest rates. Such are the affects of bankruptcy that can last so long. Especially if you have filed Chapter 7 bankruptcy because you didn’t repay any money and had all your debt eliminated. Therefore, it is absolutely important for you to plan all these things out before you go ahead with the Chapter 7 bankruptcy.
The best way to avoid such hard times in financial world is to work on getting rid of your debt, slowly but surely, try to make sure that you are doing your best to eliminate any debts and by avoiding bankruptcy. One good way is to keep a constant check on your credit report. There are a number of credit monitoring companies. You can acquire services of such companies and keep a monthly check and see if your credit is off the track. Keeping a constant eye on your credit report will prevent you from making decisions that can cause financial problems such as getting a mortgage loan that is too difficult to repay or getting other kinds of loans that you can not simply afford.
You can also avoid problems associated before bankruptcy by getting debt settlement or by getting in touch with a reputed credit consolidation professional. It’s their job to help get out of any financial jam that are currently facing. If it is already too late then forget about what happened and start working on your future. Secured line of credit is one of the good ways to reestablish your credit report. Focus on making regular flawless payments and improving your credit score. Many other people who have gone through this have come out of it very strongly. You can also be the one. What you need to do is to start planning and taking appropriate timely actions ‘now’.