Credit scores are used to determine whether a person can get a credit card or loan, and if they are approved, what the interest rate will be. People with good credit get the most favorable terms. It’s possible to achieve good credit, even after working with a bankruptcy law firm to discharge debts. Although bankruptcy will negatively impact a person’s credit score, the effects of the filing lessen over time and a person who can prove they are responsible with credit can make significant improvements to their credit score in just a couple of years.
Few lenders will offer credit to someone who has recently filed for bankruptcy. However, after the bankruptcy has been discharged, a bankruptcy law firm might recommend that a client get a secured credit card. This is a card secured by the customer’s own funds. The customer’s credit score is typically not a factor in approval for this type of card and because the account is reported to the credit bureaus, responsible use can help someone improve their scores. Over time, they may even qualify for unsecured credit or even a mortgage loan.
Any bankruptcy law firm will tell clients that it’s critical to pay all bills on time following a bankruptcy. Making payments late will further damage a person’s credit score and make it even harder to improve it. The most effective way to manage a new secured card is to use it only for small purchases. Because the interest rate might be higher than average, it’s important to pay off the balance every month to avoid additional fees. Making small purchases and paying them off promptly is a more effective way to build credit than to not use the card at all.
While they are working on their bankruptcy case, clients should talk to the bankruptcy law firm about their future and ask for advice about how to proceed after their case is discharged. Some people think they won’t be able to get a credit card or loan as long as the bankruptcy appears on their credit report but that is simply not true.