The following is a sponsored guest post by M. Sean Cydrus, an Ohio attorney specializing in bankruptcy.
Wading back into the murky world of debt can be nerve-wracking if you’ve just gone through bankruptcy. But if you have financial goals, it’s best to start now to work towards them.
Here’s your chance to take the “clean slate” that bankruptcy provides and run with it:
Step 1: Get your credit reports and credit score
First, request your free annual credit report.
Review the report to ensure everything is 100% accurate. All debts that were discharged as part of your bankruptcy should list a zero balance with “discharged in bankruptcy” or “included in bankruptcy” in the notes. The closing dates for these accounts should be within the month after your bankruptcy. Contacting the credit reporting agency and providing your “Discharge of Debtor” document should be enough to get this fixed.
Then, purchase your credit score (a good source: MyFICO.com.) This may hurt a little bit, as you see the full impact of bankruptcy on your credit score. But it’s important to know where you are to figure out how to improve, and to see how far you’ve come!
Step 2: Establish and stick to a spending budget
If spending is a problem for you, fix it first.
Create a budget that covers all of your living expenses, as well as some splurges like dining out and entertainment. Be sure there’s a piece of your income going to savings – 10% is a good place to start, although you may want more if you plan to buy a house or car in the next few years. After 90 days of keeping to the budget successfully, you can move to Step 3.
Step 3: Build positive credit
You have to use credit in order to build it. So next, you need to open a new credit account.
The best place to start may be a secured credit card, which is a card where you deposit money in advance that is used to pay for charges. Talk to local banks to find one with little to no upfront fees, and make sure the card will be reported to the credit agencies. Then, use it wisely, and put some extra money aside so that you can eventually deposit more money to raise your credit limit.
Many filers are surprised by an avalanche of credit offers after bankruptcy, but it’s actually very common. As you’re prohibited from filing for bankruptcy again for several years, credit card companies may see you as an attractive new customer. The credit offers received are typically unsecured credit cards. If you can get one, go ahead, but make sure it has no annual/up-front fees and that you pay the balance in full each month.
Your goal over time is to have a couple of accounts with banks and credit unions that are in excellent standing. Request a raise in your credit limit every 12 months, and pay the bill in full every time. This will do wonders for your credit score.
So when can I get a mortgage?
The best terms for mortgages go to buyers with good scores and sizeable down payments. Start saving and building credit now, and you’ll be ready to buy soon enough. A good rule of thumb is to wait two years before a home purchase. By then, better credit scores mean better mortgage terms, which means more house for less money – always a smart play.
Remember, your credit score can and will rebound quickly if you’re smart about your finances after bankruptcy. The end goal is a stable financial future and positive credit profile, which is completely within your reach.
M. Sean Cydrus is a bankruptcy attorney focused on helping individuals and families struggling with debt. His practices in Columbus and Chillicothe, OH, are dedicated to a personal approach to debt management. Find more information on bankruptcy at http://www.ohiodebtsolutions.com.
Andrea’s note: As someone who has experienced bankruptcy, I can tell you that these tips are extremely helpful for rebuilding your credit. My attorney didn’t offer me any advice; he took my money, showed up in court, then I never heard from him again. If you’re near the Columbus, OH area, consider contacting M. Sean Cydrus for help with your debt questions.