Do you need to use bankruptcy to help get yourself out of debt? As you may be aware, the unfortunate effect of this form of financial relief is the big impact on your credit. Here are some questions you likely have about repairing your credit after bankruptcy.
How Can You Avoid Falling Back Into Debt After Your Bankruptcy?
The first step to avoid falling back into debt after a bankruptcy is to create a budget that you will stick to in order to control your spending. This will be part of the credit counseling course that you need to take to qualify for bankruptcy, so you should have a plan in place by the time the bankruptcy is finalized. Sticking to the budget you created is crucial because you need to be working within your means to build your credit.
Part of creating a budget that works also involves creating an emergency fund. You do not want to get yourself back into debt by charging a large emergency expense. As long as you are also budgeting for an emergency fund, you will be able to dip into that cash if an emergency does come up in the future.
How Can You Build Up Credit When The Bankruptcy Is Finalized?
It may seem counterintuitive to get a credit card after filing for bankruptcy, but it is really going to help improve your credit score over time. You'll likely need to get a secured credit card at first, which means your credit limit is based on how much money you use to secure the card. For example, if you want a $250 credit limit, you need to provide $250.
The reason for using a credit card is because it will help show that you are a responsible borrower. The trick will be to keep your credit utilization low, meaning that you do not approach the maximum limit of your credit card. Therefore, a higher secured credit limit will make it easier to keep utilization low. You also must pay off the balance of the credit card every single month and not incur any late fees. Doing all this will pay off over time by increasing your credit score.
Be aware that using a debit card is not the same as a secured credit card. Debit card purchases are the same as if you wrote a check, and won't show up on your credit report.
For more information about credit repair, contact a company like Ashton Henry Financial.