Undergoing bankruptcy can devastate a credit report. Depending on your FICO score prior to filing bankruptcy, your FICO score can drop as much as 100 points. Both a low FICO score as well as having a bankruptcy on your credit report can affect your ability to get financing. When bankruptcy is your only option, it is important to understand the best ways to reestablish your credit. Reestablishing your credit will open up your credit options and help you secure lower interest rates. These are the top ways to reestablish your credit after bankruptcy:
Secured credit cards - Secured credit cards are an effective way to reestablish your credit after bankruptcy. With a secured credit card, you pick the credit limit based on security from a savings account. Although secured cards are easier to obtain after bankruptcies than those of the unsecured variety, it may not be reported as frequently as an unsecured line. This is the major drawback of a secured card, and can be avoided if you do your research. An ideal secured credit line will report on a regular basis to the credit bureaus.
High interest rate unsecured credit cards - Typically individuals wishing to reestablish their credit find this method effective. By paying your bill on time, you are proving you can be trusted by creditors. After you have reestablished your credit and are capable of landing an unsecured credit card with a lower interest rate, you could transfer the balance. Additionally, some companies offering unsecured credit cards with higher interest rates also offer credit line increases.
Get a cell phone - Many major cell phone service providers report regularly to the credit bureaus. Having a contract with a cell phone company can be reported similarly to a line of credit.
Opening a CD - This method to reestablish your credit after a bankruptcy has an added benefit of possibly making you some money. Similar to a loan or credit card, making payments on time will help you in reestablishing your credit and make a nice investment.
Credit has its benefits, and being in good standing with the credit bureaus is important. By reestablishing your credit after a bankruptcy, you are more likely to benefit from credit lines. You will be able to receive financing at a decent interest rate, in addition to being able to make necessary purchases in case of financial emergencies. Credit can either harm you or help you and by reestablishing your credit you are setting yourself up for success. Use your credit wisely. Do not take out more than you can pay back and make your loan payments on time.
