When faced with a mounting level of debt, filing for bankruptcy might be the best option. Bankruptcy helps people get their finances under control by eliminating debt or creating a reasonable plan for repayment.
While the process will impact your credit history, you can begin rebuilding your credit almost immediately. Here are a few smart steps to take.
Be responsible with your finances
Most people who file for bankruptcy do so because of an unexpected expense, such as a medical bill or repair cost. However, you can safeguard yourself against these sudden expenses by using responsible financial practices. Building an emergency fund prevents reliance on credit should an issue arise. Paying your bills on time every month also helps you maintain a great bill pay history.
Check your credit score often
There are free services that allow you to check your credit score without affecting it. You can use these services on a monthly basis to ensure your score accurately reflects your current financial standing. For instance, frequent checking and monitoring allow you to identify inaccurate information that may negatively impact your score. Upon identifying this information, you can request that the reporting bureau removes it.
Apply for a secured credit card
Proper use of credit can help improve your score after bankruptcy. In this case, applying for a secured credit card is a good way to exhibit responsible use of credit. These cards require a deposit, which the cardholder then borrows against as they use it. While they often carry high-interest rates, paying off the full balance each month can boost your score quickly while also helping you avoid interest payments.
Bankruptcies usually remain on your credit report for seven or ten years, depending on whether you file chapter 7 or chapter 13. In both cases, you can see improvements in your score in one to two years when you take the above steps.