Credit Repair After A Bankruptcy
In personal finance terms a bankruptcy has a pretty significant negative impact on an individual’s credit score and their ability to obtain credit in the near future. In fact, that impact can last up to 10 years before it fully works its way off of the consumer's record. So obviously this is a financial step that should be taken as a last resort. But assuming an individual has had to take that step, it isn’t the end of the word. It might be best to think of it as the beginning of a rebuilding process, and of future possibilities.
A Good First Step
The best place to start the credit repair process after a bankruptcy is to take a step back and honestly assess what cause led to the need to file for one in the first place.
- Problem with medical bills
- Lower income
- Loss of a job
- Too much credit debt
- Unanticipated expenses
- Accumulation of utility expense
- Student loans
- Home foreclosure
To turn things around it’s important to be honest with ourselves on what got us there, so we make the right corrections and begin developing better habits in those areas. Much of effective personal finance is simply a matter of maintaining good habits. Identifying and correcting what's not working for you, then adopting ongoing positive behaviors that will eventually put you in a better financial position.
Payments and Debt
The two areas that have the biggest impact on your credit score are your payment history and your level of personal debt. These account for a whopping 65% of your total credit score, and for good reason. If a consumer has problems with either of these two areas then there’s a much higher likelihood that they’ll have trouble with taking on any new debt.
Your payment history is pretty straightforward – how effectively are you paying your bills when they’re due. For debt the focus is on how much debt you have to available credit, or your credit utilization. And these are both areas that can be a strong factor in leading to the need to file for bankruptcy.
Fortunately, these are also areas that recover well if a consumer applies good personal financial habits over time. In the case of debt, it’s largely a matter of developing a plan for brining it down, and sticking to a budget to get there. For payment history it’s much the same thing – establishing a good budget that takes into account all of your bill due dates and sticking to it. Good habits.
And when working through credit repair after a bankruptcy, improvement in these two areas should have the biggest impact on increasing your credit score.
Look At Your Credit Reports
Another important area to focus on and maintain is your credit report. Up to 20% of credit reports can have inaccuracies. When doing credit repair after a bankruptcy it’s important to not have any additional items on your report that could further negatively impact your credit. It’s best to pull your current credit reports from all three of the major agencies – Equifax, Experian and TransUnion, and clean up any errors or discrepancies there. And then keep on top of that. Those three agencies offer a free credit report to consumers each year, so why not use it?
It will also be helpful for ensuring that when the bankruptcy should be taken off the credit reports it is. A Chapter 7 bankruptcy will remain on credit reports for 10 years from the date filed. A Chapter 13 will remain on credit reports for 7 years from the date filed.
Getting Professional Help
Much of the work in rebuilding and repairing credit can be done by the individual involved in the bankruptcy. But it can be a little demanding, especially given the busy lives we all seem to have these days. It can be helpful to consult with a credit repair professional to help you work through the process of credit repair a quickly and effectively as possible. At The Credit People we’re always happy to help!