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Rebuilding Your Personal Credit After a Business Bankruptcy
Rebuilding Your Personal Credit After a Business Bankruptcy
Filing for bankruptcy can feel like the end of the world. Your business is struggling, your personal finances are a mess, and your credit score has taken a nosedive. But there is hope – with some strategic planning and diligent effort, you can rebuild your personal credit even after declaring business bankruptcy.
The most important thing is to have a plan and take it step-by-step. Don’t try to rush the process. Rebuilding solid credit takes time. But if you stay focused and don’t get discouraged, you’ll get there.
Check Your Credit Report
The first step is getting a clear picture of where you stand. Order a free copy of your credit report from AnnualCreditReport.com and comb through it carefully. Are there any errors or discrepancies? Dispute any inaccurate information with the credit bureaus. This can boost your score simply by removing incorrect negatives.
You’ll also get a detailed view of all the accounts included in your bankruptcy – which ones are closed, which are still open, any missed or late payments, etc. Understanding the specifics will help you make a plan.
Monitor Your Credit Score
In addition to examining your credit report, it’s wise to monitor your credit score regularly during the rebuilding process. You can get free scores from sites like Credit Karma or sign up for credit monitoring through your bank.
Watching your score change (hopefully increase) over time will let you know if your credit-building strategies are working. It’s motivating to see that number inch upward as a direct result of your diligent efforts.
Make Payments on Time
Payment history is the biggest factor in calculating credit scores. When rebuilding credit after bankruptcy, the key is to make 100% of your payments for all accounts, every single month, on time. Set up autopay or calendar reminders so you never miss a payment.
Even if you can only pay the minimum due, do it – and do it on time. Late payments can seriously sabotage your credit rehabilitation progress.
Keep Balances Low
Besides on-time payment history, the second biggest scoring factor is how much you owe compared to your overall credit limit. This is called your credit utilization ratio.
For the optimal ratio, experts recommend keeping balances below 30% of your total available credit. So don’t max out cards, and pay down balances as much as you can each month.
The lower you can get your balances, the quicker your score will recover.
Apply for Secured Credit
Since your credit standing is damaged after bankruptcy, you’ll have a hard time getting approved for new unsecured credit at first. This is where secured credit cards can help.
Secured cards require an upfront security deposit that acts as your credit limit. The deposit shows lenders you can pay, and responsible use can rebuild your score.
Just be sure to avoid cards with high fees. Compare offers from major banks and credit unions. Aim for low or no annual fees.
Ask a friend or family member with good credit to add you as an authorized user on one of their credit card accounts. This can give your credit profile and score an instant boost from their positive history.
Just be sure they have excellent payment habits and low balances on that account. Irresponsible use could damage your credit through guilt by association.
Limit New Credit Applications
It’s tempting to apply for every credit card and loan that comes your way when trying to rebuild credit. But a flurry of applications can actually hurt your score since it shows desperation and credit hunger.
Be selective and only apply for 1-2 new accounts every 6 months or so. Too many new inquiries and accounts can overwhelm your credit profile and have the opposite effect.
Build Savings
Lenders want to see you can handle financial responsibility. Building up emergency savings shows fiscal discipline and stability.
Aim to stockpile at least 3-6 months’ worth of living expenses. This savings buffer will reassure lenders you can pay your debts even with unexpected expenses or income disruptions.
Plus, savings prevent you from relying on credit when cash gets tight.
Review Your Reports Annually
Mistakes happen. Even years after bankruptcy, errors can creep into your credit reports. Always review your reports annually and dispute any inaccuracies right away.
Staying on top of your credit information ensures you get the maximum score you deserve. Don’t let someone else’s mistakes drag down your rebuilding progress.
Rebuilding solid credit after bankruptcy takes diligence, patience, and perseverance. But taking it step-by-step and keeping a long view, you can repair the damage and establish strong credit once again. Don’t get discouraged – you’ve got this!