If you’re looking to rebuild your credit after bankruptcy, there are a few things you can do to get started. Check out our tips and advice to help you get back on track.
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Get a secured credit card
The first step is to get a secured credit card, which is a credit card that’s backed by a cash deposit you make upfront. The deposit serves as collateral in case you don’t pay your bill, and it also determines your credit limit. When you use a secured credit card and make payments on time, you’re building positive payment history—one of the key factors in a good credit score. You can get a secured credit card even if you have bad credit.
Here are some things to keep in mind when you’re shopping for a secured credit card:
-Look for a card with low fees. Many secured cards charge an annual fee, and some also charge a monthly maintenance fee—so it’s important to find a card with reasonable fees.
-Read the fine print. Some cards require you to keep your deposit in an account with the issuer for a certain period of time or may only refund your deposit after you close the account and pay your balance in full.
-Consider whether you want a rewards program. Some secured cards offer rewards programs, so if that’s important to you, look for a card that offers rewards on the things you spend the most money on—whether that’s gas, groceries, or travel.
Become an authorized user
You can rebuild your credit score by becoming an authorized user on someone else’s credit card. As an authorized user, you’ll receive a credit card in your name that’s linked to another person’s account. You won’t be held responsible for the debt, but the account will show up on your credit report.
If the primary cardholder has good credit, it will rub off on you and help improve your score. Just make sure the primary cardholder doesn’t have any late payments or maxed-out credit cards, as this could negatively affect your score. You can become an authorized user by asking a friend or family member with good credit to add you to their account.
Get a credit-builder loan
A credit-builder loan is a special type of loan designed to help people rebuild their credit. The loans are usually small (ranging from $300 to $1,000), with terms of 12 to 24 months. You don’t get the money right away — the lender holds on to it and reports your payments to the credit bureaus.
Credit-builder loans can be a good option if you’re having trouble qualifying for a traditional loan because of your credit history. But they do come with some risks:
-The loans usually have high interest rates (20% or more)
-You could end up paying hundreds of dollars in fees
-If you miss a payment, the lender could keep all or part of your money (depending on the state you live in)
Before you take out a credit-builder loan, make sure you understand the terms and conditions. And be sure you have a plan in place to repay the loan so you don’t end up worse off than when you started.
Use a credit monitoring service
Consider using a credit monitoring service to help you keep track of your credit report and score. These services are usually offered free for a limited time, and then for a monthly fee. Some credit card companies also offer free credit monitoring as an added perk for cardholders.
Check your credit reports regularly
Bankruptcy can damage your credit for years, but rebuilding your credit is possible if you take the right steps.
Start by checking your credit reports regularly. You can get a free copy of your report from each of the three major credit reporting agencies once a year at AnnualCreditReport.com. Review your reports carefully to make sure there are no errors or signs of fraud.
If you see anything on your report that doesn’t look right, dispute it with the credit bureau. You can do this online, and you should receive a response within 30 days.
Next, make sure you’re paying all of your bills on time. Payment history is one of the most important factors in your credit score, so it’s important to build up a good payment history after bankruptcy. Consider setting up automatic payments so you don’t have to worry about making a late payment.
If you can, try to pay more than the minimum due each month on your debts. This will help you pay off your debt faster and improve your credit score.
You might also want to consider getting a secured credit card after bankruptcy. A secured card is one that requires you to put down a security deposit equal to your credit limit. This deposit acts as collateral in case you default on your payments, so it’s easier for issuers to approve people with bad credit for these cards. Just make sure you use the card responsibly by making on-time payments and keeping your balance low relative to your credit limit.
Rebuilding your credit after bankruptcy takes time and effort, but it is possible to improve your credit score and get back on track financially.