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While filing for bankruptcy will negatively impact your credit, contrary to what many people think, it doesn't mean you'll never qualify for a loan or credit card again. While there are many factors that affect a person's credit score, using a credit card responsibly can quickly improve your credit score in a relatively short amount of time.
Credit report companies like Equifax, Experian, and Trans Union, maintain information on how much credit a person has, their payment history, and how much debt remains against them. If you have a high credit to debt ratio (you don't have much debt on credit cards or loans), your credit score will be improved if you continue to pay off debts in a timely and responsible manner.
What about Getting a Credit Card after Bankruptcy?
Banks and credit card companies depend on consumers using credit. In fact, banks and credit card companies make a great deal of money off of credit cards. That's why banks and credit card companies are still interested in people who have filed for bankruptcy -- they don't want to lose any potential sources of revenue. In the months following bankruptcy, most people receive solicitations for credit cards. Typically, you will qualify for a low balance credit card, usually around $500.
After you receive a low balance credit card, make sure you pay off the balance every month. If you can't pay off the full balance, make sure you pay the minimum amount due on time. Keep in mind that credit reporting companies keep track of your credit to debt ratio and whether or not you are able to maintain regular, monthly payments. When you pay down your balance, you maintain a desirable credit to debt ratio. Eventually, your credit line will be increased as you continue to use your credit card responsibly.
Qualifying for Loans after Bankruptcy
In order to qualify for a car, appliance, or home loan after bankruptcy, you must have an established credit score that lenders find reliable. Consequently, starting off with a credit card and using it responsibly is the first step in the process. After your credit line is increased and you qualify for more credit cards, your credit to debt ratio should increase as well. Since you want a higher credit to debt ratio, cancelling unused credit cards could work against you: by cancelling an unused credit card you automatically increase your debt to credit ratio.
For example, suppose you have 4 credit cards with a credit limit of $5,000 each. Supposed you have $5,000 in debt spread across three of your cards. Your credit to debt ratio would be $5,000 to $20,000 -- or 1 dollar to every 4 dollars of credit. If you cancelled your unused credit card your debt to credit ratio would be $5,000 to $15,000, or 1 dollar to every 3 dollars of credit. By cancelling your unused card the amount of debt relative to your available credit would increase. As a result, your credit score would be negatively impacted and you may not qualify for certain kinds of loans.
Contact Bankruptcy Attorney Robert G. LaMontagne Today
There are a number of financial matters that must be considered when filing for bankruptcy. In order to prepare for life after bankruptcy, it's important to work with an experienced lawyer who can guide you through a number of legal and financial issues. As your attorney, Robert G. LaMontagne explains how bankruptcy impacts taxes, divorce settlements, credit ratings, estate plans, and other matters.
Get started today with Chapter 7 Bankruptcy for $299; Chapter 13 for $279
To schedule a free consultation and discuss your case, contact bankruptcy attorney Robert G. LaMontagne today.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
