I am often asked for advice on how to rebuild credit after bankruptcy. There are no real secrets or shortcuts involved. But I can tell you one thing will make the biggest impact on your credit score after bankruptcy.
Paying on Time is the Key
Of all the factors that go into a credit score, timely payments will give you the largest boost. Potential creditors want to know that you can handle the debt that you already have before granting you new credit. If you can’t pay your existing accounts on time, why would you treat the new creditor any differently?
Even One Late-Pay Can Hurt
Credit scores are cumulative. What this means is that they are not just a snapshot in time. Rather, credit scores are computed by looking at many years worth of information. The better you do over time, the better your credit score will be over time.
Nonetheless, even one late payment can really impact your credit score. Late payments can mean that the borrower is careless, or worse yet, in financial distress. Because a potential lender doesn’t know where on that continuum you land, they will likely assume the worst and think that you are financial distress if they see late payments. And nobody wants to lend money to someone that is in financial distress.
On-Time Minimum Payments are Better Than no Payments
If you cannot afford to pay off your account in full each month, making even the minimum payment is better than no payments at all. On time minimum payments each month will actually boost your credit score. Whatever you do, pay at least the minimum payment on time each month. Your credit score will start going up in no time!
Slow and Steady Wins the Race
The more effort you put into maintaining good credit practices, the better your credit score will be in the end. Don’t be fooled into thinking that there are shortcuts or secrets involved. Every part of a credit score is public knowledge and easily found on the internet. Put in good effort, and your credit score will reflect your suitability to borrow money.
I provide advice to my bankrutpcy clients regarding rebuilding their credit after bankruptcy. If you are thinking about filing for Chapter 7 or Chapter 13 bankruptcy, please contact me at (916) 333-2222.