One of the concerns about filing for bankruptcy is that those folks will never be able to obtain credit again after filing for bankruptcy protection and assistance. Most times, nothing could be further from the truth as bankruptcy may actually improve folks’ credit score, according to my clients’ experiences (and as explained by Smart Money on their website). Every debt collection note on a credit report, every late payment, every negative notation affects a debtor’s credit score. Bankruptcy? It doesn’t add to the negative credit score; it replaces a number of negatives with ONE negative notation of “discharged in bankruptcy” with the account showing a “zero” balance. That act usually improves a debtor’s credit score. As my colleague Doug Jacobs stated in his article on this site, debtors should list all of their debts to insure that a financial fresh start is obtained. There are a number of other ways to improve your credit score.
Post-bankruptcy, acting carefully in making financial decisions improves a debtor’s credit rating according to Liz Weston of MSN Money. Jennifer Weston mentions eight credit repair tips in her blog:
1. after your bankruptcy is discharged, check your credit report for errors
2. check your report again
3. make a budget and stick to it
4. be careful when applying for new credit
5. use the automatic payment function on credit so that you won’t (ever) forget to make a payment
6. if you have student loans, make SURE you make those payments on time (this will help rebuild your credit)
7. apply for a secured credit card (where you deposit money against future charges)
8. when you do obtain new credit (and you will), do NOT max out the cards. Credit rating is affected by amount of credit available ratio to credit used.
Using the above tips, a diligent debtor will find that even a mortgage is obtainable quickly after filing for bankruptcy, according to Craig Andresen, my Minnesota colleague. Folks who educate themselves about the ways to protect themselves and who act wisely will find that their credit score improves rapidly.
Most folks are entitled to receive one free credit report each year. Those reports can be obtained through www.annualcreditreport.com or by going to each of the three credit reporting agencies:
Experian
Equifax
Transunion
In addition, there are three check/bank account reporting agencies:
Telecheck
Chex Systems
Early Warning Services
Debtors who have had returned checks or overdrawn checking accounts and who find themselves turned down for a new account should obtain a copy (also free) of their report from those agencies as well.