Tips on the Best Way to Rebuild Credit from our Maryland & Washington DC Bankruptcy Attorney
Congratulations on taking the first steps toward regaining your financial stability through your Chapter 7 bankruptcy or Chapter 13 bankruptcy . Many debtors who file bankruptcy already have a history of bad credit due to late payments, foreclosures, repossessions and judgments brought by creditors. Following bankruptcy, your income to debt ratio often improves because it no longer includes a large amount of debt. Then, you can begin to build a positive credit history that you may never have experienced before.
Now, with the help of our bankruptcy lawyer, is the time to take the next step and rebuild your credit rating and credit score.
- Get a secured credit card. Secured credit cards use money you pre-deposited into the bank as collateral against the credit card charges. Look for a card with no fees. You want one that reports your payment history to the three major credit bureaus.
- Open an account with a large bank. Keeping an active checking account and/or savings account in good standing will help to prove your ability to handle finances. Additionally, it will improve your credit history with the financial institution.
- Pay your current expenses on time. If you have a car or a mortgage payment, or perhaps a student loan, keep making payments.
- Clean up your credit reports. By federal law, you may receive a free copy of each of your three credit agency reports each year. Request the reports and look them over closely for errors. Take steps to then correct errors as quickly as possible.
- Spend your money frugally.
- Create a budget.
- Start a savings plan.
- Use credit cards sparingly.
- Obtain loans with a co-signer.
Begin Spending Your Money in a Frugal Manner
To control spending and manage debt, you must understand what you spend your money on and why you spend. Begin making a list of what you spend each day, how much it costs and any charges made to your credit card. At the end of one month, analyze your list. Group your expenses into categories, such as utilities, entertainment, commuting, food, clothing and medical expenses. Once you have done this, look for areas where you could start cutting your spending. For example, if you spend a lot of money eating out during the work week, try to cut back the number of days that you buy lunch and begin packing a lunch instead. Simple saving strategies can add up to decreased debt and more financial security quickly.
Once you have identified your monthly expenses, you should create a budget that will allow you to live within your means. To create a budget, first create a list of your monthly income. This should include money from any jobs, self-employment, alimony support, interest or dividends, pension or retirement income, and public assistance. Then, compare this list to your monthly expenses. If your expenses exceed your income, you need to continue decreasing your expenses.
Once you have created a feasible budget, you should continually monitor your spending to ensure that you live within the budget that you created. Remind yourself on a continual basis why you are controlling your spending. Also, ensure that your budget is realistic. Adjust it if you failed to include necessary expenses in your initial budget.
Start a Savings Plan
One of the keys to financial independence is saving money. If you ever face an emergency or have unexpected expenses, a savings account is absolutely necessary to maintaining your standard of living. To begin saving, you should establish a savings plan where you contribute a portion of your income on a regular basis. This will ensure that you actually contribute to the plan. Creating a separate account from your normal checking account will help you keep separate funds. Creating a savings account that is automatically withdrawn from your paycheck is a simple way to ensure that you begin saving funds. Examples of such accounts include 401(K)s, IRAs, or other retirement accounts, as well as 529 college savings plans.
If you are permitted to keep a credit card after bankruptcy, continue to maintain an open account. However, ensure that you do not begin incurring large credit card debt. Use your card occasionally and try to pay it off each month. Even if you cannot pay the entire amount, make sure you pay the minimum amount due. That way, your account will not be in default.
If you were not able to maintain a credit card account after bankruptcy, a secured credit card account may be an option to help you reestablish a good credit record. A secured credit card is issued by a depository bank and is secured by money deposited into your bank account with that bank. In the event that you default on a credit card payment, the bank uses money from your account to cover the payment. The interest rates for secured credit cards are higher than those for normal credit cards. However, if you make timely payments each month, you can avoid paying interest altogether, while slowly rebuilding your credit.
Obtain Loans with a Co-Signer
Although most lenders will not likely allow you to take out individual loans following your bankruptcy, you can likely receive some loans if you can obtain a co-signer with a positive credit history. Timely payments made on loans following bankruptcy will continue to improve your credit score.
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