After a person has been declared bankrupt, arranging credit can then be either very difficult or very costly. Many lenders will consider the credit history to be too risky and may result in credit applications being declined altogether.
With bankruptcy having such a negative impact on a person’s credit score, if credit is offered, it is likely to be at a very high rate of interest. There are however, specialist lenders for which their target market is for people that have very poor credit ratings or that have been declared bankrupt. These companies could be the only option for credit if bankruptcy is an entry on a person’s credit history. The entry will be filed on the credit report for between six and ten years depending on the person’s country of residence.
There are methods in which a bankrupt client can mend their credit score in a short period of time however, which may result in that person qualifying for credit with good interest rates and terms. There are two important points to remember:
Credit history does not last – Even though a bankruptcy entry on someone’s credit file may remain there for up to ten years, the effect of the bankruptcy can begin to diminish immediately from the point that the case I closed. Should a person continue with positive and sensible credit habits immediately after being declared bankrupt, the process of increasing the person’s credit score will take effect. Examples of this would be by paying bills on time and in full.
Credit must be obtained in order to rebuild credit scores – After a person has been issued bankruptcy, the only way to improve the credit score is to continue improving the credit history. This means applying for new credit, whether it be high interest and using only a small amount of the available credit, while keeping the account in good order. Over time, this will result in improvements to the bankrupt’s credit score.
There are two types of credit that can be applied for after being declared bankrupt and in turn, they will help rebuild credit scores. The first is instalment credit, for example a mortgage, student loan or vehicle loan. The second is revolving credit such as a credit or store card. The majority of these will be issued only on a secured basis. It is recommended to use all of the above lightly but regularly, do not use the maximum credit available (keep below 30%) and it is important to keep up to date with payments.
Further points to look for when trying to rebuild credit scores by applying for secured credit include;
One problem that can often arise from a bankruptcy is that credit reports may still show accounts and debts as still open or overdue. The truth is they would have been closed and monies owed wiped out as part of the bankruptcy. If this is the case it is important to immediately contact any credit bureau to alter their records to reflect that bankruptcy has been filed. If this procedure is not followed, the credit history will be unable to recover or improve. Please note that this is not always the case however and often credit bureaus automatically update files accordingly.
It is important to act immediately after a bankruptcy filing has been issued in order to start improving a credit rating.
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