A past bankruptcy is perhaps the single worst stain a person could obtain on his or her credit report. A past bankruptcy declaration can obliterate a previously good credit score and can stay on your credit report for years afterwards. The ramifications of having a past bankruptcy on your credit score makes it extremely difficult to procure loans or lines of credit, can make you an ineligible applicant when applying to rent housing, can prevent you from landing certain jobs, and can even prevent you from obtaining professional licensure in certain fields of employment. While there are many long-term negative effects to declaring bankruptcy, there are things you can do to rehabilitate your credit. Below, we have provided a list of actions you can take to improve your credit score as you try to bounce back from bankruptcy.
Get A Secured Credit Card
Even if you have an abysmal credit score due to a past bankruptcy, lenders will typically issue you a secured credit card. A secured credit card acts like a normal credit card in that it allows you to purchase items or pay expenses on credit. However, unlike with obtaining a regular credit card, obtaining a secured credit card requires you to pay a deposit. This deposit, usually $200, will be the same amount as your credit limit on the card. In the event that you do not pay your monthly payments, the financial lender who issued you the credit card will retain your deposit to pay off the credit card balance. But, if you make the payments on-time, after a while, this will improve your credit score. This is particularly true if you refrain from using more than 30% of your credit limit. What is more is that, in the event that you decide to close your secured credit card, the lending company will refund your deposit to you provided that your balance is paid in full.
Pay Expenses On Time
One of the most important things you can do to bounce back from a bankruptcy is to pay your expenses on time. Payment history constitutes 35% of your FICO score, which is the credit scoring model used by most lenders. If you continue to pay your expenses on time, this will slowly improve your credit score. However, if you make a late payment, it can have adverse consequences to your credit. For example, if a person who has an excellent credit score makes one late payment, the late payment can cause that person’s credit score to drop by 100 points or more. Moreover, while someone bouncing back from bankruptcy will certainly not have an excellent credit score right off the bat, a late payment on your credit history can cause your already low credit score to drop by as much as 45 points.
Make A Budget And Stick To It
Making a budget and sticking to it is perhaps the best place to start when trying to bounce back from bankruptcy. Making a budget will force you to think about the costs of your necessary living expenses and plan to pay for them accordingly. Furthermore, it can help you to save money so that in the event that you have to make a major purchase or you experience a significant setback, then you will have the money to pay the costs associated with it and will not have to apply for credit to cover the costs.
Apply For Credit Sparingly
In addition to making payments on time, do not apply for multiple lines of credit over and over again. Each time you apply for credit, lenders will perform a hard inquiry on you, which will cause your credit score to drop by a few points each time. After a while, the hard inquiries will add up and will show future lenders that you are applying for credit on a frequent basis because you cannot afford to pay for your living expenses on your existing income. This will cause your credit score to drop significantly rather than improve.
Contact a Paterson Bankruptcy Attorney for a Consultation About Elderly Bankruptcy in New Jersey Today
If you are struggling with debt, you may need a fresh start financially. An experienced bankruptcy and debt relief attorney can help you explore your options and determine the best course of action for you, your family, and/or your business. The experienced New Jersey bankruptcy lawyers at Silverman & Roedel, LLC understand the nuances of NJ and federal bankruptcy laws, so we can help you protect your interests. Call us anytime at 973-772-6411 or fill out the online contact form to schedule a confidential consultation. We have an office conveniently located at 1187 Main Avenue, Suite 2C, Clifton, NJ 07011.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney-client relationship. If you are seeking legal advice, please contact our law firm directly.