If you have already filed bankruptcy, or are approaching the end of your case, you might be wondering what the next steps are. How to rebuild your credit and avoid financial trouble in the future. It will take time to process all the emotions from the setbacks you’ve been through. But while you do, there are some specific steps you can take to rebuild your credit and financial life.
Rebuilding your financial life after bankruptcy has two parts. You must first deal with the negative information on your credit reports and, second, build positive new credit references.
Know Where Your Credit Stands
Wait until about 60 days after your discharge, then obtain a free copy of your credit report from AnnualCreditReport.com.
Carefully review all the information: accounts discharged in bankruptcy should show a zero balance and indicate that the debt was forgiven in bankruptcy.
Check for mistakes and incorrectly reported information, such as a report that you still owe money on an account that was discharged.
Contest any incorrectly reported information with the credit reporting bureau. The less your credit report says you owe, the better off your credit will be.
Start to Repair Your Credit
Once you know how your credit looks, it’s time to start engaging in the kind of behavior that will replenish your credit report with positive credit actions and thus make you look like a more attractive credit risk to potential future lenders.
Recent information has a major impact on your credit scores. That means you can start to rebuild your credit as soon as your bankruptcy is completed. You do this by making sure you have current positive credit references that can help boost your credit scores.
Debts you paid on time throughout your bankruptcy – such as a car loan, mortgage or student loans, for example – help. But you will also want at least one open major credit card listed on your credit reports. If you don’t have any, consider a secured card.
A secured card is a major credit card that requires a security deposit. The deposit will be held in a bank account as long as the secured card is open. If you manage your account properly, you will get your deposit back when you close the account.
Note that a secured card is different from a prepaid card. A prepaid card is a type of debit card. You load money on the account and then use the money you’ve loaded. These cards are not reported to the major credit reporting agencies, so they don’t help build your credit scores.
Watch Out for Scams
After filing for bankruptcy, you will probably be deluged with offers of credit and financial services promising to help you rebuild your financial life. Some of these are genuine, but many are scams. Here are some to watch out for:
Advance fee loan scams: This term covers a variety of scams, but for people trying to rebuild after bankruptcy, advance fee scams might involve someone posing as a lender and “guaranteeing” you a loan – if you agree to pay a fee in order to have that loan offered to you. If, in fact, you were able to get a loan and make regular payments on it, the loan would likely help you rebuild your credit. But if it’s an advance fee scam, what will likely happen is your loan will never materialize and the fee you pay will be gone forever.
Credit repair scams: These, too, are sadly common. They involve a company promising to “repair” or “wipe out” your credit record – even if the information on it is completely accurate. Of course, this is not legal to do and will end up costing you money that you’d be better off saving or putting toward real credit-building ventures.
New credit file scams: This variety of scam involves a company giving you a “new credit identity” – essentially, the company gives you an Employee Identification Number (EIN) to use with the credit bureaus in lieu of your Social Security Number. The claim is that you’d get to build credit from a clean slate, but the catch is that this is highly illegal and could lead to jail time and/or hefty fines. Plus, all the time you spend building your “new” credit identity is time in which your real credit identity just languishes.