Bankruptcy is the worst possible thing you can do to your credit score. If you are in the process of filing for bankruptcy, you have probably already heard this from a well-meaning friend. While bankruptcy is not the first option you should consider if you are struggling with your bills, it is not the worst possible thing you can do either. With a little bit of work, you can bounce back after bankruptcy.
The first thing you need to do after the air clears from your bankruptcy is make some changes to your finances. Stop the cycle that got you into the mess you were in. Stop spending money you do not have. The bankruptcy cleared out the debts you were struggling with, so now it is time to start over. Get on a budget, and stick with it. Live on a cash-only basis as you learn how to handle credit better.
Once you are working well on a budget, get a credit card with a small limit on it. If you cannot get an unsecured credit card, consider a secured type of credit, such as a home equity line of credit if you own your own home. Start paying your bills on time every single month.
Also, only use the credit cards lightly. Even if you only have a $200 credit limit, charge $20 or so a month on the card, and then pay it off in full when the bill comes. In this way you are showing the credit card company that you have learned from your past spending mistakes and now know how to use credit wisely. You do not have to carry a balance to increase your credit rating. Never charge more than 30 percent of the credit limit, as this can actually damage your credit score.
The bankruptcy will stay on your credit score for up to ten years, but you can be rebuilding the score even while it is still there. Every month that you pay your bills on time, your score will go up. Soon you will be at the lower “good credit” range, even with a bankruptcy on your history. You may be surprised that you can qualify for a mortgage or car loan within just a few years of declaring bankruptcy. Bankruptcy should be avoided if at all possible, but if you are in a position where you have no other option, remember that you can rebuild your credit score after declaring bankruptcy with a little discipline and hard work.
