Any business or individual who has to file for bankruptcy will definitely go to see a negative impact on their credit score. The reason is that the lenders rely on the credit score as one of the consideration for approval in loan and credit at any interest rate. The credit score normally ranges from 300 to maximum 850. By knowing the credit score, the lenders can decide quickly how risky is to offer the borrowers money.
It is almost definitely, that a state of unable to repay all debts or bankruptcy hit the credit score badly. How bad it depends on where and how the situation occurs. In general, bankruptcy is a red flag for lenders. However, here are some other ways to take an active role in reinvigorating financial health post-bankruptcy:
Aware of credit score
Knowing and reviewing the credit reports to some people are maybe painful. However, unable to grasp the starting point will be difficult to decide where to go. It is advisable to get a copy of credit report and know the actual credit score. It necessary, review any inaccuracies and make note of the debts. Then, by this, a plan to pay off debts and improve the credit will take place. Typically anything over 700 is considered good and between 750 — 850 considered excellent. Conversely, anything under 640 is considered poor with 400 or lower being very poor.
Start fresh by opening a new bank account
Opening a new checking and savings account will demonstrate financial stability. This will also provide practice for good financial habits. It is recommended when opening the new bank account signing up automatic online bill pay to ensure bills paid on time. This is a major factor in a good credit. Payment history makes up 35 percent of credit score, and on-time repayments can quickly and easily rebuild the credit score. In addition to that, every month, it is important to put a little bit away in savings. Although 5 to 10 percent is recommended, saving anything is positive. Having emergency savings allows to forgo using credit if there a sudden bill that emerges.
Another thing that you need to consider is that avoiding closing account. The reason is the credit score is also look at another 30 percent amounts owed. This is calculated by looking at how much you owe relative to how much credit available. Thus, when closing accounts, the total credit limit decreases, which lowers the credit score.
Apply for secured credit card
The secured credit cards are one of the easiest ways to build credit and improve credit scores. Make sure before applying, compare interest rates of different cards, and the best is selecting a card with the best rate and a low annual fee. A rate around 15% is good and an annual fee less than $30 is desirable.
Get a gas and/or retail card
This will improve the credit score immidiately because one aspect of credit score is “types of credit in use.” By using different types of credit, it will improve the credit score. Gas and retail cards typically do not require applicants to have good credit and, in fact, cater to people with blemished credit.
Pay off the balance in full every month (and on time!)
While reestablishing credit, it is critical to pay off the full balance every month. Keep in mind that 35 percent of credit score is payment history, so paying bills on time and in-full will quickly build the credit score.
Monitor credit score continuously
Check the credit score regularly (monthly is ideal) while improving the credit. Watching that number go up can make you feel like your hard work is really paying off.
Apart from the process above, make a commitment to maintaining solid financial habits over time. The key to rebuilding credit is consistency over time. This means paying bills on time and meeting all credit obligations when they are due. In addition to that, discipline and develop skills for making proper budgeting are the essential step in building strong financial habits. It will not only assist to rebuild credit but also help maintain good credit going forward and prevent financial hardship. Budgeting allows knowing what money comes in and make a strict plan for what goes out.
It is also important to remember to be patient throughout this process. A bankruptcy can impact your credit for at least 10 years. The more active a role is taken and the sooner the process is starting, thus the quicker bouncing back from bankruptcy.