What you need to know about credit after bankruptcy
There is no denying the fact that filing for bankruptcy protection can leave a dent in a person’s credit score, but the good news is that with patience and dedication that dent does not need to be permanent. In fact, by putting an end to the vicious cycle of overwhelming debt and unpaid bills, filing bankruptcy can actually give borrowers the opportunity to improve their credit scores over time. To achieve this result, however, it is important to plan carefully for life after bankruptcy.
After filing bankruptcy, many borrowers are concerned about whether they will ever again be able to qualify for a credit card, home mortgage or other loan. While some of these goals take longer to achieve than others, many borrowers are surprised to find that they begin receiving offers for credit right away after their debts are discharged through bankruptcy.
When considering credit use after bankruptcy, it is important to proceed with caution. Although borrowing in moderation and making payments on time can be a highly effective way to rebuild credit after bankruptcy, there are a number of reasons why some people choose to wait a while before borrowing again.
People who have had debts discharged through bankruptcy often know firsthand how quickly this type of spending can spiral out of control, and some may feel that using credit again so soon would be a risky move. For these individuals, it is perfectly reasonable – even advisable – to steer clear of borrowing until they feel confident that they will be able to handle it. Although it may take a little longer, simply paying bills on time each month for things like rent and utilities will also help improve credit over time by establishing a new pattern of financially responsible behavior.
Borrowing after bankruptcy
Another reason that some people feel reluctant to use credit after bankruptcy is that the credit terms available to them are often very unfavorable, especially at first. In order to obtain credit on the best terms available after bankruptcy, it is important to shop around rather than accepting the first offer that comes along.
Some credit card companies target their marketing directly to people who have recently been through bankruptcy because they believe that these individuals may think they have no other options and will therefore be willing to accept unfavorable terms like very high interest rates, early repayment penalties and other fees. In many cases, however, there are better options available.
When using a credit card after bankruptcy, borrowers should be very careful to keep their charges low and make payments on time without exception. Generally speaking, it is wise to charge no more than about 10 to 15 percent of the limit on any given line of credit and to never max out on an account. To help keep balances low, it is also a good idea to get in the habit of paying off the entire balance each month, particularly for the first several months.
Struggling with debt? Talk to a lawyer about your options
For people whose debts have grown beyond their ability to pay, the future can seem bleak. However, there is help available. If you are in debt and looking for a way out, consider speaking with an experienced bankruptcy lawyer about your situation. An attorney with a background in bankruptcy and debt relief can help you evaluate your options and assist you in choosing a path that is right for you.