When your loans become unmanageable and you cannot afford the payments, when your debt collectors hound you day and night; how do you get yourself out of such a situation? Sometimes filing for a bankruptcy seems to be the only option left. Of course it provides a temporarily relief, as the lenders stop calling you. But on the downside it has an extreme negative effect on your reputation, self-esteem and credit. A person may see a drop of 150 to 200 points on the credit score after declaring a bankruptcy. Improving your financial situation and credit profile after filing a bankruptcy is a long haul process. But it isn’t impossible. You need patience and perseverance to gradually raise your score. Here are some practical and real ways of getting your financial health back on track.
1. Review Your Credit Report
After filing for bankruptcy you won’t be responsible for the debts that you incorporated while filing. So the first thing that you should do is to review your credit report and make sure that all the information reported there is correct. Get one copy from all the three bureaus to ensure that each of them has updated the report correctly. Are there any duplicate entries? Are there any debts or outstanding judgements that should have been eliminated? If anything is stated incorrectly file a dispute with the respective bureau so that the mistakes can be corrected.
2. Manage your finances
If poor spending habits led to a situation where you had to file for bankruptcy, now is the time to take control of your finances. Make a budget, and most importantly stick to it. If you do not have sufficient funds to make monthly payments, you will need to cut down on costs or look for ways to increase your pay. Start building an emergency fund slowly. Having some cushion of money to meet unexpected expenses will give you peace of mind.
3. Timely payments
The fastest way to improve your score is to pay attention to the factor that makes up 30% of the score- and that is your payment history. Make payments of your credit card bills on time. Set up reminders or automatic payments so that you never miss a due date. Timely payments over a period of time will help you boost your score. If your payment is overdue for more than 90 days the lender may enter your name in the loan defaulter’s list. This will bring your score further down.
Apart from the credit card bills you may still have some secured loans that survived bankruptcy. These are known as reaffirmations. You can continue making timely payments on these loans. Since the lender will report the treatment of this debt to the credit bureau, it is good opportunity for you to make timely payments on it and rebuild your credit score.
4. Secured credit card
After a bankruptcy not many lenders might be willing to give you credit. But to boost your score you need to take on some debt and show that you are responsible with the payments. A good way to start out is to get a secured credit card. A secured credit card is backed by a deposit and doesn’t require you to have a very good CIBIL score. Since the credit limit is determined on the basis of the amount of deposit, the issuer isn’t exposed to any risk. Since the activities on the card are reported to the bureau, making timely payments will help in rebuilding your score. The interest rate on these cards is usually on a higher side, so after a year or so you may request for a shift to a regular card.
5. Take a loan
It is true that just after filing a bankruptcy not many lenders would be willing to lend money to a high risk borrower. But you can look for personal loans for CIBIL defaulters that may help you rebuild credit. You can also consider co-signing a loan with someone with a good credit score. You may even ask someone to make you an authorized user on their credit card. When positive payment activity gets reported on your report it helps to improve the score.
When positive information starts getting recorded on the credit report, the effect of previous negative information starts fading away. But one needs to be patient and persistent. It may take an effort of 3-5 years to get your score back in shape. Be committed to your goal and follow healthy credit habits.