If you or someone you know is thinking of filing for bankruptcy, you are among the more than 1 million Americans who do it every year. The good news is that number is down from 2 million in 2005 — the record year for bankruptcy filings, according to USCourts.gov. However, if you must file bankruptcy, or already had to due to the recent recession, remember it is not a life sentence nor the end of your financial future. No matter what your age is, you can rebuild your credit, but the process takes patience, commitment and education.
Check Your Credit
Obtain a copy of your credit report to evaluate the current situation. You can obtain a credit report from any of the major credit bureaus once per year. If you want to know your credit score, Forbes.com suggests credit tracking services like Quizzle.com and CreditKarma.com.
Read through your credit history report and look for any mistakes. About 70 percent of reports contain mistakes, according to Forbes. If you notice one in yours, contact the creditor and the credit bureaus to request an investigation. Provide proof by sending in a copy of documentation showing there is a mistake. Keep the originals with you so that you can resend the information if it gets lost in the mail.
Work on Your Debts
If you have credit card debt, personal loans, a mortgage or any other form of financing, work on repaying your creditors in a timely manner.
Create a budget plan. Start with your total monthly income and then subtract all of the necessary expenses, such as your rent, utilities and grocery expenses. Count the minimum payment on your debts in the necessary expenses so that you do not forget any of the bills.
With the leftover funds, put half into your debts. Put the rest of the funds into a savings account for emergencies so that you will not need to use credit to pay for unexpected costs. Consumereports.org suggests that you pay the debts with the highest interest rates first and work your way through the debts one at a time. For example, if you have a credit card with 19 percent interest and a car loan with 10 percent interest, then you pay the minimum balance on the car loan and put the extra funds toward the credit card debt until it is repaid. Then you pay the car loan.
If you filed for bankruptcy, then take out a new credit card. Buy small items and repay the full balance at the end of the month. It will help re-establish your credit history.
Arrange a Schedule to Pay Your Bills
Although debt repayment plays a role in your credit history, it is not the only factor that impacts your current rating. All of your bills, including the rent and utilities, are reported to the credit bureaus; a late payment will impact your score in a negative way.
Avoid late payments by arranging a specific time to pay your bills. Call and ask your creditors and service providers if they can shift your payment due date to a specific time, such as the first or last week of the month. By adjusting the due date, it is easier to avoid accidentally forgetting to pay a bill until the due date has passed.
Get Back on Your Feet
Rebuilding your credit score after a hardship does not mean you need to sacrifice everything. By budgeting carefully and paying your bills on time, your credit score will improve naturally. Some auto dealerships offer financing options to people who have bad credit or who are trying to re-establish their credit. The availability for this type of loan depends on your state laws, local market and a host of other factors. For example, dealerships might offer more options for auto loans in a large market than they would in smaller rural markets. According to Midwaynissan.com, dealerships can work with your financial situation to qualify you for auto loans in Phoenix. The most important thing to remember is to have patience and understand that the process takes time.