Rebuilding your credit before or after bankrutpcy
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From theUS Supreme Court:
"One of the primary purposes of the Bankruptcy Act is to give debtors a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt."
Bankruptcy can be an extremely difficult time for the many Americans that file for it every day. Those that file for bankruptcy often have many concerns, but there are several that are especially pertinent:
- What will bankruptcy do to my credit score?
- How can I begin to rebuild my credit?
- Will my peers look down on me?
- Is there really a 10 year wait before I can start to rebuild my credit?
Fortunately, people with concerns like these can be comforted with the truth. Bankruptcy can actually be the best option to save and improve your credit score when you are backed into a corner with both a bad credit rating and large debt.
What's the difference between my "credit" and my "credit report"?
While most people use these two terms interchangeably, that is simply incorrect. Credit is your ability to borrow money, where as your credit report is a summary of your paymentd and credit history. Even if you have perfect credit and payment history, it will be impossible to receive a loan if you currently have more bills than you can afford to pay. However, after your bankruptcy is complete you will have little to no debt, and therefore, will have good credit in the eyes of lenders. Ultimately, after your bankruptcy you will be less of a risk to creditors because you will currently be able to afford new debts, despite your past credit history and payments.
Credit that will help one rebuild credit:
You need two types of credit to quickly rebuild your credit score:
- Installment: auto loans, student loans or mortgages
- Revolving: credit cards or home equity lines of credit
If you still have student loans, you can actually use them to rebuild your score. You can do this by consistently making your payments on time, all the time, and trying to pay more than you owe whenever possible. Next to making on-time payments, paying down your existing debt is one of the best ways to improve your credit score.
Bankruptcy vs. Living with debt
Bankruptcy is no more harmful to your credit record than the financial circumstances that lead to the bankruptcy filing. It is much more important for your future financial health to look at your net worth rather then at your ability to borrow in the future. Remember that DISCHARGING your debts in bankruptcy is better than living with the debt and the stress of how to pay your bills that comes along with it.
Learn from your mistakes
At first glance, people who file more than one bankruptcy seem to be beating the system: They run up big bills and then walk away. However, with a closer look you'll see these multiple bankruptcies are essentially just self-defeating. The purpose of bankruptcy is to get a fresh start in order to build financial stability. If you are constantly restarting, this stability and peace of mind will never come. Those who continuously file for bankruptcy face paying out large sums in high interest payments during the time when they're prohibited from filing another bankruptcy since they continue to have poor credit scores.
Rather than taking this path of never ending ups-and-downs, use your bankruptcy as a wake-up call to figure out what's wrong with your finances and fix it.
If you didn't have enough savings to survive a job loss or other setback, get serious about establishing an emergency fund.
If you were sunk by medical bills, seek a job with insurance coverage or check to see if your state offers coverage.
The point of bankruptcy is to be able to SAVE, not necessarily BORROW again, especially not right away.