The effects of bankruptcy on credit scores are one of the primary reasons many people avoid bankruptcy. However, it is not impossible to rebuild credit after filing for bankruptcy. Exploring ways to do this may help you rebuild your credit score faster after going through bankruptcy. Feel free to consult with a Chattanooga bankruptcy lawyer if you are still deciding whether bankruptcy is the right step for you.
Why Credit Scores Matter
A credit score is what gives you access to various financial deals and opportunities. The higher your credit score is, the better. Higher credit scores give you higher chances of:
Receiving loans
Lower interest rates
Lower monthly payments
Healthy credit scores make it easier to buy a house, car, or other large purchases. Low credit scores make these processes significantly harder. Credits scores that are low enough may prevent someone from making a purchase altogether.
Credit scores are provided on your credit report, which details the number of loans you have, repayment history, and financial events like repossession or bankruptcy. Many people think payment history is the sole determinant of a credit score. However, other factors are used to calculate a credit score:
Length of credit history
Credit Inquiries
How much debt you owe
Variety of credit on your report
How to Rebuild Credit After Bankruptcy
Rebuilding credit after bankruptcy sounds impossible. This process can take time and effort but is not impossible. There are several ways to build credit after bankruptcy that might help you rebuild credit faster.
Filing for Chapter 7 or 13 bankruptcy usually lowers a credit score by about 160 to 240 points. Your goal will be to make up for these lost points. Repayment history is one of the fastest ways to build credit. Using a secured credit card is a safe way to do this. A secured credit card has you deposit however much money you plan to spend ahead of time.
Secured loans can help in a similar way because they are backed up by deposits made ahead of time. Some people prefer to obtain a small car loan they can pay back in about three to four years. Others may prefer smaller personal loans.
Other ways to rebuild credit include paying bills on time, limiting how much credit you apply for, paying off credit balances every month, and knowing spending limits. Avoid any past mistakes with money. To rebuild credit, try to keep your debt and monthly payments manageable while rebuilding credit.
Budgeting can be one of the most important skills to learn to avoid falling back into bankruptcy. By tracking your monthly income and spending, you will reduce your chances of falling back into debt. Apps, spreadsheets, and paper worksheets can simplify budgeting.
Contact Tom Bible Law Today
Filing for bankruptcy can be a stressful step to take. Start by calling us at Tom Bible Law at (423) 424-3116 for a consultation today to figure out your bankruptcy options. Our legal team of Tennessee bankruptcy attorneys is ready to help you explore your legal options related to bankruptcy. We are located throughout the Tennessee cities of Chattanooga and Tullahoma.