Bankruptcy is a challenging financial setback that can have an impact on your credit score, making it difficult to get new credit and if you do, you may pay higher interest rates.
However, continually missing payments prolongs the impact on your credit, whereas filing for bankruptcy can provide you with a fresh start that allows you to rebuild your credit over time.
Check your credit report regularly
In 2022, 387,721 people filed for bankruptcy according to U.S. Courts, and all of these individuals had to review their credit reports before beginning their credit rebuilding processes. You can get a free copy of your credit report from the three major credit bureaus: Experian, Equifax and TransUnion. Look for inaccuracies or discrepancies and dispute any errors you find.
Establish a budget
Create a budget to help you manage your finances post-bankruptcy. Calculate your monthly income and expenses and allocate your resources wisely. Then, set up reminders or automatic payments so you never miss a payment due date. Also, pay down your existing debts, starting with high-interest loans or credit cards.
Diversify your credit portfolio
Get a mix of different types of credit accounts, such as credit cards, installment loans and mortgages. Start with a secured credit card. You provide a security deposit that acts as collateral for the credit limit. Use this card responsibly and make timely payments and you will demonstrate your creditworthiness over time.
However, be selective in applying for new credit accounts, and only take on what you can manage comfortably. Too many credit inquiries can negatively affect your credit score.
Rebuilding your credit takes time, but with diligence and responsible financial habits, your credit score will gradually improve. Do not feel discouraged by setbacks and stay committed to your financial goals.