Your credit score is used by more companies and in more ways than you might believe. Of course, your credit score is used by lenders to calculate the risk of loaning you money; however, your credit score is also used by insurance companies, wireless providers, and rental companies. If you have a low credit score, you will pay a higher interest rate for loans, you may not be able to open a bank account, you may pay higher insurance rates, and you may not be able to rent the apartment or house you want.
Bankruptcy may be the first step you take to improve your credit score. While it is true that your credit score may go down temporarily when you file bankruptcy, most debtors see an improvement in their credit score within a year after completing a bankruptcy filing. After your bankruptcy case is complete, there are other steps you can take to improve your credit score as you continue down the path to financial well-being.
Number One: Order Your Credit Report
This may not sound too appealing because you just completed a bankruptcy case and you know your credit score probably took a slight hit; however, this is the first step you must take to improve your credit score. You are entitled to a free copy of your credit report from all three credit reporting agencies (Experian, TransUnion, and Equifax) every 12 months. It is important to review each of your credit reports once a year and correct any mistakes that you find in the credit reports that can lower your credit score. Look for items such as:
- Closed accounts that are still listed as open.
- Accounts with a balance that were discharged in bankruptcy.
- Accounts with a balance that you paid in full.
- Accounts you do not recognize.
- Credit limits that are too high or too low.
- Collection accounts that are still open that were discharged in bankruptcy or otherwise paid.
- Legal proceedings you do not recognize.
If you find a mistake, dispute the error with the credit reporting agency. The agency must investigate your dispute within 30 to 45 days. Gather as much evidence as possible supporting your dispute and include copies of the evidence with your formal dispute.
Number Two: Make All Future Payments on Time
Payment history is the largest factor used to calculate your credit score (35%). One late payment can decrease your credit score, two or more late payments will substantially decrease your credit score. By making all future debt payments on or before the due date for the payment, you will begin to see an improvement in your credit score as old late payments drop off and those payments are replaced with timely payments.
Number Three: Apply for a Secured Credit Card
A secured credit card is one way you can improve your credit score after bankruptcy. You will be required to pay a deposit to the credit card company to secure the charges on the credit card. Before applying for a secured credit card, verify that the credit card company reports information to the credit bureaus so your timely payments are included in your credit history.
Number Four: Add an Installment Loan
Within a year after your bankruptcy case is closed, you should be able to qualify for an installment loan with a reputable lending institution. The interest rate may be a little high but the benefit for your credit score will be worth it. By adding different types of credit accounts to your credit history, you will improve your credit score. Diversity in types of credit used is one of the factors the credit bureaus use to calculate your credit score.
Number Five: Do Not Close Old Credit Accounts
If you had an old credit card account that was not listed in your bankruptcy case because it had a zero balance at the time of filing, the company may not close the account. After your bankruptcy case is closed, use the old credit account (provided it remained open) to charge a small amount and pay it off in full. By doing this you lengthen your credit history which counts for 15% of you credit score.
Number Six: Keep Balances Below Thirty-five Percent of Your Credit Limit
Maxing out your credit accounts will hurt your credit score. The amounts you owe accounts for 30% of your credit score. By keeping your credit balances below 35% of your credit limit, you will improve your credit score provided you make all payments on or before the due date for the payment.
Number Seven: Apply for a Retail or Gas Credit Card
When you are ready to have a credit card again, apply for a retail or gas credit card. These types of credit cards are easier to obtain after filing bankruptcy. Your interest rate may be a little high at first but as you make timely payments you can probably negotiate a lower interest rate.
Use the credit card wisely by charging small amounts and paying the balance in full on or before the due date. This will help improve your credit score by adding to your positive pay history and adding another type of credit to your credit history.
Do You Need Help With Debt Problems?
It is easy to get into debt but much more difficult to get out of debt. One financial crisis such as losing a job, being injured in an accident, or going through a divorce can result in debt problems that are too difficult to handle without help.
Bankruptcy is designed to give you a fresh start so that you can recover from a financial crisis to begin rebuilding your credit and improving your financial well-being. Contact The Ballard Law Group to schedule a free bankruptcy consultation with an experienced Atlanta bankruptcy attorney. Call our office at (404) 800-9939.