John Henderson Law
What's the Best Way to Rebuild Credit After Bankruptcy?
Once a chapter 7 bankruptcy is discharged, the debtor has the opportunity to make a fresh start. The last thing that needs to happen is falling back into the same old habits that led to the previous financial difficulties. This means making use of the information provided during the court-ordered financial classes and charting a fresh course for the future. Along the way, that will mean starting to rebuild the credit. One of the best ways to manage the task is to look into secured credit and lending options.
Choosing a Secured Credit Card
Once the bankruptcy discharge is completed, the former debtor is likely to receive a number of credit card offers. Many of those offers will look great on the surface but come with various fees and possibly an interest rate that will increase significantly after six months.
A better choice is to open a secured credit card account. Accounts of this type require the holder to deposit funds into a savings account. That savings acts as the security for the credit limit extended to the client. Some secured card providers will allow a credit limit equal to the amount deposited into the account. Others may limit it to anywhere between 50% and 100%.
The beauty of this approach is that the credit limit can only be increased if more money is placed into the savings account. While using the card to rebuild the credit rating, the former debtor is earning interest on the savings account balance. To ensure the most benefit is derived from this strategy, verify that the card issuer reports regularly to at least one of the three major credit reporting bureaus.
Opting for a Secured Loan
Another approach is to obtain a secured loan from a financial institution. Banks and credit unions often provide this type of financing. Like the secured credit card, the balance in a savings account functions as collateral. As the institution reports those timely payments on the loan balance, the credit score will begin to recover.
There are other strategies that will help the former debtor regain a sound financial footing once the bankruptcy is discharged. Talk with the team at John Henderson Law and learn more about the process of filing for bankruptcy, what the court will require, and how to move forward in the years to come. With the right approach, the future will look a lot brighter.