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Tuesday, July 16, 2013

5 steps to help you recover from a bankruptcy

Anyone who has experienced a bankruptcy knows how hard it is to reestablish good credit again.  The good news is, it's not impossible.  

It's important to take the appropriate actions after filing bankruptcy in order to get credit scores rebuilt, especially if you would like to be able to buy a home again.  Low credit scores often result in higher interest rates and fees and make obtaining a home much more difficult.

Despite your situation, your goal should be to repair your credit as fast as possible.  With a few simple steps, you can be back on your feet in a short amount of time.  Here's how:

1.  Set Boundaries on Spending

Start by tracking your expenses over a 2 to 3 month period in order to figure out what you are spending and where your money is going.  From there, make a realistic budget that fits within your monthly income.  Find spending areas that can be cut and instead delegate that money to a savings account you can have in case of emergency.  

Sometimes putting together an excel spreadsheet or using a budget calculator online can better help organize your expenses.  The website mappingyourfuture.org provides a great budget calculator that takes into account everything from utilities to childcare, to clothing and entertainment expenses.  

2. Check Your Credit Report Beforehand

After a few months of filing bankruptcy, look at your credit report to ensure every closed account and debt is properly reporting.  You can request a free report once a year from each of the three major credit-reporting agencies (Equifax, Experian, and Transunion) by visiting www.annualcreditreport.com.  You also want to take control of your finances and start making some smart moves, which means monitoring your report regularly for errors.

3. Pay Your Bills On Time, Every Time

No matter how big or small, every delinquent payment harms your credit score.  Bill-paying habits account for 35 percent of your overall credit score.  Creditors want to know that after a bankruptcy you aren't going to make the same mistakes again, and what better way to prove that than a perfect payment history.  One great way is to setup automatic payments on the days you get paid.  This way your bills get paid no matter what, and before other unnecessary or last minute expenses.  One great website that is free to use and reminds you to pay your bills is https://www.mint.com/

4. Get a Secured Credit Card

It's like a regular credit card, but you are only allowed to spend the money you actually have.  Genius, right? Secured credit cards act like prepaid cards or debit cards so you treat it like you would cash.  They are a great alternative for those with low credit scores or those who cannot qualify for a regular credit card.  Use it sparingly for 6  to 12 months and then try to negotiate for an unsecured card.  

Options about secured credit cards can be found at http://www.creditcards.com/secured-credit-cards.php

5. Continue Practicing Good Habits

Once you get the above four steps down, make it a commitment and stick to it.  Remember that credit not only comes from paying bills on time but through spending habits as well.  

If you have three credit cards and all three are maxed out, your scores are likely to hurt from it.  Creditors like to see spending control and spending within your means.  Just because they give you a $500 limit, does not mean you should charge it up to $500.  The golden rule is to never spend more than 30 percent of the maximum limit on your credit card.  On a $500 credit card, never spend more than $150.  

Also, pay off any existing collections, tax liens, or judgments.  Though your scores may take a hit at first, in the long run they will begin to improve as you decrease the amount of derogatory accounts.  

In conclusion, recovering from a bankruptcy is easier than it seems.  It just takes a little preparation and a lot of dedication, but in the end you can repair your credit and qualify to buy a home again within just a couple years.  

If you have any other questions about bankruptcy or qualifying for a mortgage please contact us at info@ranlife.com

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