How to Improve Your Credit Score after Bankruptcy

Your credit score can take a significant dive after filing bankruptcy. However, there are some simple methods that can be used to raise credit scores and improve financial stability.

Don’t Close Unused Credit Cards

One of the elements of a credit score is the debt-to-credit ratio. The more lines of credit that are open and available, the more total credit a consumer has available. As such, closing an unused card can significantly lower this ratio. For example, having three cards with $5,000 limits each results in a total of $15,000 in credit available. If there is a $1,000 balance on one card, the simplified debt to credit ratio is 1/15. If one of the unused cards is closed, the ratio drops to 1/10. This can make a significant difference in how a consumer’s debt is viewed. If you don’t trust yourself, then cut up the cards or place them in water and freeze them to avoid using these accounts on impulse.

Avoid Opening New Lines of Credit

Applying for a new card can have two separate detrimental effects towards a score. First, credit inquiries can lower a consumer’s score. This is because the act of looking for new credit equates a consumer with higher risk. New lines of credit also lower the total average age of your credit which can negatively affect a credit score. On a side note, a small credit card (usually secured) can be used to gradually improve credit score if it is used properly and payments are paid off on time.

Setup Payment Reminders and Automatic Payments

The largest determining factor in a credit score is the ability to make consistent monthly payments on time. Most large banks such as Bank of America and Wachovia have online banking portals. These portals make it easy to setup email or SMS alerts that remind consumers of upcoming due payments. In addition to alert services, automatic transfers can be setup to pay bills online directly from a checking or savings account. Smart consumers take advantage of both of these services to stay on top of payments and manage debt.

Reduce the Amount of Debt Owed

Stop using credit cards and focus on paying off the balance on each card. Reducing the amount of debt incurred also affects the debt-to-credit ratio. In an ideal situation, a consumer would be able to pay off each card completely at the end of every month. Attention should be focused on paying off cards with the highest interest rate, while maintaining minimum payments on other lines of credit.

Contact Your Creditors

Credit card companies have a bad reputation from media and consumer horror stories. Surprisingly, these institutions can be one of the most helpful places for information. Creditors know what actions will and won’t positively affect a credit score. Any consumer that is having trouble making payments or determining what kind of payment plan to establish should give their creditor a call via the publicly available 1-800 number.

Rebuilding credit after bankruptcy is primarily a time-based approach that requires patience and continued success. Don’t be afraid to ask for help from your bank or creditor if you feel overwhelmed.

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