(TNS)—Filing for bankruptcy can feel like you’ve hit rock bottom. While it does wipe out your old debt, bankruptcies stay on your credit report for 7-10 years, hurting your long-term chances of qualifying for a mortgage or other credit.
Despite the hardships you’ll endure after declaring a bankruptcy, there are several ways you can bounce back. Here’s what you need to know.
- Make a budget.
Budgeting can be difficult, especially if you’ve never created a budget or tracked your money before, but the first step in good money management is to actually manage your money. Whether through a spreadsheet or your favorite online platform, there are plenty of ways to track expenses and income. To start, calculate all of your fixed expenses such as your mortgage payment, home bills, insurance and anything you’re required to pay monthly. Make sure your budget can cover all of these costs.
Next, calculate your other needs such as food, clothing and entertainment. Leave room for discretionary and emergency savings, but make sure your projected spending falls within your means.
- Start using cash.
Having a limited amount of cash on hand will keep you on-budget and prevent you from charging more than you can afford on a credit card. While you don’t need to use cash for every purchase, prioritizing cash spending can help you to save money. For instance, you may think twice about buying extra snacks at the grocery store if you end up being a few dollars short for necessities like eggs or milk. When your cash runs out, it’s gone.
Using cash may only be temporary for you, but it’s a good step to help mitigate excess spending. Once you’ve got a grip on your budget, you can reintroduce cards.
- Diligently pay on time.
On-time payments are a major part of your credit history, accounting for 35 percent of your overall score. Late payments tell lenders you’re not responsible enough with your money. It also makes them cautious about lending money to you in the future.
To increase your credit score, set up a system that allows you to pay all of your bills by their due date. Many people find it helpful to set a calendar alert the day before a payment is due to avoid unintentional missed payments. Whenever possible, setting up auto-pay can also help avoid missed payments and ease stress associated with forgotten payments.
- Add positive accounts to your history.
After bankruptcy, it may be hard to qualify for lines of credit, a credit card or a loan. To improve your chances of getting approved for a line of credit from a lender, you can add positive accounts and current bills to your credit history. Not everything qualifies, and some bills are harder to add than others, but it can help you later on when you’re applying for new credit.
Utility companies, for instance, aren’t required to report your bills to credit companies since they’re not official credit accounts. Experian offers a service that allows customers to add utility and phone bills to Experian credit reports. TransUnion and Equifax don’t currently offer this service. This is a helpful tool for anyone with a low or no credit score, and especially useful if you’ve filed for bankruptcy.
- Try a secured credit card.
A secured credit card, available to people with credit scores below 600, can help people get their feet back on the ground and rebuild credit after declaring bankruptcy. Secured cards have a credit limit based on the cash you deposit as collateral. If you can put down $250, that’s your limit.
You’ll use and pay off the card like you would a regular card, but the credit card issuer can’t lose money on you. If you fail to pay off your balance, the lender taps your cash security. Remember: You’re looking to build up your credit profile, so it’s important to make on-time monthly payments.
To find a good secured credit card, make sure it gets reported to the major credit bureaus. Also, try to find one with low fees and flexible repayment terms. After a few months, you may be able to transition to a regular credit card with a higher limit.
- Avoid scams.
While there are some legitimate companies that can help you rebuild your credit as quickly as possible, many can’t do much more for you than you can do yourself. Companies that request an upfront fee, for example, may be trying to take advantage of consumers who are desperate to increase their credit scores. If you suspect a possible fraud on your accounts, report it to the credit bureaus.
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