How To Build Credit After Bankruptcy

After completing bankruptcy, here are some basic steps you can take to begin the process of preparation for mediation.

  • Check your credit report
  • Sign up for free credit tracking
  • Open a credit card or loan

SEE CREDIT CARD OPTIONS: The Best Credit Cards After Bankruptcy

Next, we will cover exactly how to complete each of these steps and why they are all important to rebuilding credit.

Check your credit report

Visit AnnualCreditReport.com and request your credit report from the three credit bureaus: Equifax, Experian and TransUnion. You have the legal right to a free annual credit report from any credit bureau.

Look at your credit report and look for inaccurate information, such as debts that should have been written off after filing for bankruptcy. These can negatively affect your credit and you do not want to slow down your reconstruction.

If you notice errors, challenge them with the credit bureau that issued the report. All credit bureaus have an online dispute resolution process, so it is easy to make a difference. We have also covered how to do this in our guide to credit bureaus.

READ THE GUIDE: What are the 3 Credit Bureaus?

Sign up for free credit tracking

Choose a free credit tracking service and sign up for an account to track your credit score. There are several services that provide you with your free credit score, which is updated every month.

I always recommend going with a service that provides your FICO® rating. The FICO® rating is what most lenders use, so it gives you the most accurate idea of ​​what they are seeing when they check your credit. Here are two free options:

The only way to be sure that you are creating credit is to keep track of your credit score. You will be able to see where you are in relation to the lowest possible credit score and your target score. And to be honest, it’s good to get in the habit of checking your credit regardless of your score. I do this regularly to make sure there are no major changes.

LEARN MORE: How to find out your credit score

Open a credit card or loan

Apply for a credit card or loan designed to restructure credit. The most popular options are secured credit cards and credit cards. A secure credit card is one that requires a security deposit to open. A credit card is a loan where you do not receive the money until you have repaid it.

LEARN MORE: What Is A Credit Mortgage?

This is extremely important – to build credit, you need to prove that you can borrow money and repay it. This means that you need a credit account to make monthly payments and these payments must be reported to the credit bureaus.

I would go with a credit card, because you can use it without paying interest. If you always pay the full balance of your card, then there will be no interest on your purchases. With a loan, you will pay interest. This does not make it a bad choice, but it can be more expensive.

COMPARISON TOP OPTIONS: Best Credit Cards For Bad Credit

What is the fastest way to build credit after bankruptcy?

When it comes to building credit, people are not usually looking for a slow and steady choice. They want to get their credit score back to normal ASAP. While there is no way to overcharge this process, you can at least do all the little things that will help you increase your credit score and ultimately qualify for the best credit cards.

Use your credit card every month and pay on time: The most important tip is the simplest. Once you have a credit card, make at least one purchase with it per month, and then pay the bill on time. It is also wise to pay the full balance so that no interest is charged.

Your payment history is what matters most to your credit score and accounts for 35% of your FICO® rating. By using your credit card regularly, you will have a credit card bill to pay each month. These timely payments will increase and begin to improve your credit.

Do not use more than 20% of your credit limit: Another important factor in your credit score is the amount owed to you, which represents 30% of your FICO® score. It is better for your credit score if you do not use too much of your credit.

The sweet spot is to keep the credit utilization rate below about 20% to 30%. The use of credit is the amount of your credit limit you use. If your card has a limit of $ 1,000, then a balance of $ 200 would give you 20% credit. The lower is better here, so I suggest you do not go over 20% while creating credit.

Consider getting a loan: You can create credit with a credit card or a loan, but it helps to have one. Part of your credit score is your credit score, a factor that accounts for 10% of your FICO® score. It’s best for your credit if you have a credit card and a loan, instead of just one or the other.

Restriction of new credit applications: Each time you apply for a new loan, it has a small effect on your credit score. It is also worthwhile to get at least one credit card or loan and you may want to get one of each. Other than that, keep requests to a minimum when creating your credit. Although it does not have a huge impact, it slows down your progress.

LEARN MORE: Does Credit Card Applying Credit Your Credit Score?

Ask to be an authorized user on another person’s credit card: When someone adds you to their credit card account as an authorized user, the card issuer can report the activity of that card in your credit file. If this person pays their bill on time and does not use excessive credit, these are positive activities that could help your credit.

LEARN MORE: Does being an authorized user generate credit?

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