REBUILDING CREDIT AFTER FILING BANKRUPTCY

Most people are aware of how important it is to maintain a good credit score. One of the reasons that many people who are overwhelmed with debt are hesitant to explore filing bankruptcy is the fear that it will do even more damage to their credit scores than they have already done in falling behind in paying their bills. However, those who have filed bankruptcy can take steps to rebuild their credit scores and should be aware of some common pitfalls to avoid during the process.

Credit Cards

One of the best ways to begin rebuilding credit is to apply for a secured credit card. A person can open a secured credit card with a bank or credit union by giving the bank the amount of money equal to the credit limit. For example, if a person gives the bank $500, the card's limit is $500. After several months of reliable payments, the person can raise the credit limit by giving the bank more money. Some banks allow up to $10,000 limits on secured cards.

The cardholder must make sure that the bank will report the card's activity to the three major credit reporting agencies, however, or the card will not help a person build positive credit history. Additionally, a person seeking to rebuild credit should avoid institutions that require hefty fees to open a secured credit card, as the fees will eat up much of the credit limit before a person can make any purchases and the card will not help build credit as much.

This path will eventually lead to the ability to take out unsecured credit cards, as well. However, a person needs to be diligent in paying the balance off every month. Carrying a balance on a credit card does not build positive credit and could lead to a person spiraling into the same situation that led to filing bankruptcy in the first place.

What to Avoid

People trying to rebuild credit need to apply for new credit selectively. Numerous credit inquiries lower a person's credit score, so a person should be confident that he or she will receive credit before even filling out an application.

People should also be wary of getting credit from finance companies that charge excessive fees and exorbitant interest rates. Credit from such businesses does not look as good on a credit report as credit from a bank or credit union.

Consult an Attorney

Trying to find a solution to financial problems can be overwhelming. If you are struggling with debt, consult an experienced debt relief attorney who can discuss your situation with you and advise you of your options.