Rebuilding Your Credit After Bankruptcy
After filing for bankruptcy, your first instinct may be to avoid credit altogether – after all, many people are afraid they'll fall into old habits if they have credit sources available.
But today's world practically demands that you have a credit history of some sort: car lenders, home lenders, landlords, credit card issuers and more will all check your credit report before extending you loans or credit.
Think of it this way: you filed for bankruptcy because you were struggling with debt, which means your credit probably wasn't very strong before bankruptcy.
Now that you've hopefully discharged your debts, you can take steps to make your credit stronger than ever – true, the bankruptcy filing will stay on your report for up to 10 years, but creditors tend to value recent action more heavily than action from long ago.
In a way, you're on a sort of financial probation right now. If you take steps to clean up and rebuild your credit, you'll set yourself up for strong credit and financial success in the future.
To start rebuilding your credit, you must do three things:
- Check your credit report.
- Correct any mistakes on your credit report.
- Make sure you haven't been victimized by identity theft.
Read on to learn more about credit and bankruptcy. Or, if you're considering filing for bankruptcy fill out the below form to talk to a bankruptcy lawyer about your options.
Check Your Credit Report
Guess what: even if you don't plan on borrowing money any time soon, your life will likely be affected by your credit score.
Future employers, potential landlords and even insurance providers check credit reports, and they may charge you more money or pass you over if your credit history is weak.
Within one to two years of bankruptcy, you can likely make meaningful improvements to your credit report and credit score.
- What is a credit report? Your credit report is a collection of information about you as a borrower – that is, it's a history of payment actions (or inactions) on a variety of accounts. Information from mortgages, student loans, credit cards, medical bills and more may appear on your credit report.
- What is a credit score? Your credit score is a number between 300 and 850 calculated based on your credit report. The FICO Score, which was developed by the Fair Isaac Corporation, is the most widely used credit score among lenders, and lets lenders know what kind of a credit risk you are – the higher your credit score, the better.
- What factors are considered when determining “credit risk”? Though some variation exists among the formulas used to calculate credit scores, the following factors are generally important:
- Age of accounts: the older, the better.
- Percentage of credit used compared to percentage available: the less of your available credit you're using, the better.
- Collection actions: the fewer, the better.
- Late payments: the fewer, the better.
Thanks to the Fair Credit Reporting Act of 2003, all Americans have the right to a free copy of their credit reports from each of the three major credit reporting bureaus (Experian, Equifax and TransUnion) every year.
To get your free credit report, visit www.annualcreditreport.com.
Fixing Your Credit Report
Once you've been to the Web site listed above and taken a look at your credit report, it's important for you to verify the information listed with your personal records.
If you spot any errors, you must take specific steps to have them corrected; after all, your financial future depends in large part on this document. Here's what to do:
- Notify the credit reporting agency in writing about the specific error(s) you found.
- The CRA then has 30 days to investigate your claim, which it will do by contacting the institution that provided the contested information. The CRA must forward you any relevant information it collects.
- The original provider of the faulty information will review its records and correct any errors. If it does find errors, it must also notify other CRAs so that your information appears correctly on your reports.
- If the CRA or the original provider of data refuses to change anything, ask to have a copy of your initial letter included in your credit file as documentation that you initiated a complaint.
If you think your rights have been violated by a CRA, you have some options and may want to discuss them with a bankruptcy lawyer.
Make Sure You're Not an Identity Theft Victim
Unfortunately, this is easier said than done. Identity theft occurs when someone uses your personal information (Social Security Number, bank account information, credit card number, etc.) to make fraudulent purchases in your name.
Because of the nature of identity theft, many people don't realize they've been victimized until they're facing overwhelming financial charges they never made or their bank accounts have been drained. But, by checking your credit report regularly, you can monitor action on your accounts and catch any suspicious activity before it gets out of control.
If you think you've been victimized by identity theft, you have legal rights, and may want to consult a lawyer to make sure you get the protection and compensation you deserve.
Learn about avoiding traps when rebuilding your credit.