Bankruptcy gives you an opportunity to get a fresh financial start. Having a bankruptcy on your record can cause problems if you need to apply for loans, mortgages and other financing. Though the impact of bankruptcy on your credit report and credit score can last up to 10 years, you can improve your scores quicker if you are able to rebuild credit. So, you’ll want to start reestablishing your credit as soon as possible.

4 Steps to Rebuilding Your Credit After Bankruptcy

During the bankruptcy process, you are sent for credit counseling. A good credit counselor will teach you about building your credit after a bankruptcy. It takes a lot of discipline, but it’s worth it. These are the steps you should follow to reestablish and rebuild your credit:

Create a monthly budget
You’ll want to break the bad habits that got you into financial trouble in the first place. The best way to do this is to create a monthly budget. List the item and amount of:

Your income sources

The bills that are essential for you to pay (mortgage or rent, utilities, food, insurance, etc.)

Your optional expenses (clothing, entertainment, charitable giving, etc.)

Build your savings
Try to save as much as you can in a savings account. Building your savings can help you when you encounter unexpected expenses outside of your budget. Having a cash cushion will allow you to obtain secured credit cards and secured loans up to the value of your savings.

Apply for a secured credit card
Within weeks of completing your bankruptcy, you may receive offers from credit card companies. To start reestablishing your credit, you really only need one credit card. Pick carefully. The safest vehicles for reestablishing credit are secured credit cards. For a secured credit card, you deposit an amount of money and can charge or borrow up to that amount. This is not the same as using a debit card. Funds are not removed when charges are made. The money used to secure the credit card remains there and you pay out of your chequing account. Be sure to shop around. Different secured credit cards have different rules, rates, fees, and deposit minimums and maximums.

Make regular, on-time payments
Pay your debts on time. No excuses. No procrastination. The most important thing you can do to reestablish your credit is to reestablish a credit history that includes on-time payments. It’s no joke. One late payment can hurt your credit score for years. Ideally, you would pay each bill in full each month. If you are unable to do that, then pay the minimum amount due to avoid late fees and additional negative impacts on your credit score.

If you follow the steps above, you should begin seeing an improvement in your scores within three to five years. 

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