Whether you file for Chapter 7 or Chapter 13 bankruptcy in Georgia, you can expect your credit to take a hit. Although most people who file for bankruptcy understand this, they may find it difficult to figure out how to gradually improve their credit.
The good news is that bankruptcy filers have many ways that they can increase their credit scores during and after bankruptcy proceedings. This article focuses on some of the tried and true ways to take charge of credit and enjoy better relationships with creditors.
Become a Better Money Manager During Bankruptcy
Just because you have filed for bankruptcy does not mean that you have to sit back and watch your credit score sit at an uncomfortably low number. In fact, you can take several steps to learn how to manage your money habits throughout the seven to 10 years following bankruptcy.
Pay all bills on time: Sending in all your payments on time is a critical way to raise your credit, even while you are still technically in bankruptcy. Every month that you pay at least the minimum you owe to creditors will put you in a stronger place to keep your credit scores from falling. Plus, the longer you go without missing a payment, the stronger your payment history and reputation for being a good credit risk. This will help you get credit, perhaps even while you are in bankruptcy.
Check your credit scores: In order to keep your credit scores as high as you can, you will need to know what they are to begin with. Although you can get credit reports annually, you may also want to know your actual credit score. Many credit card companies offer this for free to their creditors as a perk. If nothing else, at least stay on top of your credit reports so you can deal with any discrepancies right away.
Put money in a savings account: If you have filed for Chapter 13 bankruptcy instead of Chapter 7 bankruptcy, you may be able to start saving a little bit of money every month. Open a savings account and systematically put your extra dollars into it. Do not touch it unless you need the funds for an emergency. When you reach several thousand dollars, consider opening a CD or just paying down your debts faster. You will help build your assets.
Pay down your student loans as promised: You will have to pay back your student loans even during bankruptcy. Be sure that you make them a priority, along with the rest of your bills. Do not allow payments to your student loan issuer to lapse or fall behind.
Buy only what you need: Do you have a tendency to jump at the chance to buy items that you do not actually need, just because you like them, they are on sale, or they could be useful “down the road?” Resist the temptation to do this because it could lead back to behaviors that led you to file for bankruptcy in the first place. Before making any purchases for products and services, ask yourself if what you are about to spend money on is necessary.
Evaluate your monthly bills: You will receive invoices from your creditors every month. Look over them carefully. Could you reduce them somehow? For instance, your cable bill may be very high. Do you really watch that much television? And do you go to the gym enough to justify the price? Trimming unnecessary expenses goes a long way toward freeing you from future debt and eventually boosting your credit score.
Raise a Lowered Credit Score After Bankruptcy
When you are finally out of bankruptcy, you can once again be in charge of your incoming and outgoing money. At this point, you can aggressively begin to starting rebuilding your credit. In addition to everything you did to improve your credit scores during your bankruptcy, adopt the following additional strategies to keep it moving upwards.
Prioritize your creditors: From this point forward, prioritize your bills over everything else. Never spend any money that belongs to another. Yes, you might want to buy something, but do it only after you know your bills have been covered.
Avoid exceeding your credit limit: Have you opened a new credit card account after ending your time in bankruptcy? You will be given a credit card spending limit that matches your credit card risk. Do not go above it by trying to max out your cards, or by asking for the credit limit to be increased. This will only hurt your credit rating.
Apply for a secured credit card. Secured credit card issuers will require that you put down some kind of security deposit so they are assured that they will get their money back if you miss payments. Though it can seem tedious to work with a secured credit card because you will not have a significant line of credit, the secured credit card issuer will let the credit bureaus know if you are being a good creditor. Plus, most secured credit cards do not have an annual fee, which is good for your ongoing cash. Eventually, you can get a higher credit limit and perhaps even transfer your secured credit card to an unsecured one.
Take out a small loan. Yes, you read that correctly. Absorbing a small loan, such as one for a modest used car to help you get safely to and from work, can repair a distressed credit score. Be sure that your loan is going to be easy for you to pay back on time, every month. By the time you reach the end of the loan repayment, you should have a higher credit score.
Create ongoing budgets and update them at least twice a year: When you originally filed for bankruptcy, you and your bankruptcy attorney put together a budget plan. Continue tweaking your budget plan and updating it at least every six months. The easiest way to understand how much you are spending is to keep meticulous records of all your invoices, receipts, etc. That way, you can stay ahead of any unexpected expenses.
Do not allow poor money managers to be authorized users on your credit card or bank accounts: Have someone in your family who is bad with finances? Whether it is your spouse or child, do not make them an authorized user on any money management accounts.
Do not co-sign on leases and loans: Another way you could get into credit trouble again would be to cosign on a home mortgage, a property lease, or a car loan. If payments go into arrears, you will be left dealing with the mess and trying to rectify the situation. Instead of agreeing to co-sign anything, see if you can give the individual a one-time gift of money you know you will not need.
Build up an emergency bank account fund: Were you able to create a savings account during your bankruptcy? Even if you could not, now is the time to do it. Just putting aside $25 a month will give you $300 annually. Of course, you would want to have more than that in your emergency fund. However, anything is a good start because it keeps you out of future trouble.
Keep checking your credit reports. Again, make sure you get a credit report from Experian, Equifax, or Transunion every four months. Rotate between the three credit bureaus to avoid incurring any fees. Notice issues? Handle them immediately to make certain your credit score is not affected by a mistake.
Tips to Stay Away From the Need to File Bankruptcy Again
The biggest stumbling block to improving a credit score after bankruptcy is impatience. Yes, it can be tough to wait it out and watch your credit score only inch up a bit at a time. However, the wait will be worth it when your credit is once again at an acceptable place.
Thinking about filing for Chapter 7 or Chapter 13 bankruptcy and want advice from a knowledgeable bankruptcy attorney serving clients throughout Georgia? Contact the Law Office of Jeffrey B. Kelly at (770) 637-1756 to arrange a free consultation appointment.