Bankruptcy is a term refers to the legal process involving an individual or business that is unable to pay their outstanding debts. It could happen if you have undergone a significant loss in your business, lost a job, or been paralyzed or handicapped due to an accident. When a person files for bankruptcy, his CIBIL score decreases, and having a low CIBIL score makes it almost impossible to obtain an additional credit.
Although bankruptcy is a complex legal process which can create a negative impact on your credit, but the good news is – no matter how much damage is done to your credit, it won’t last forever on your credit report. In general, bankruptcy remains on your credit report for seven to ten years, but its effect diminishes over time. Meanwhile, by taking the following proactive steps, you can start enhancing your credit right away.
Take The Following Measures To Rebuild Your CIBIL Score
Building excellent credit after a bankruptcy requires maintaining good financial habits. Your credit will recover from any setback if you follow these principles:
Check Your Credit Report
As we all know, bankruptcy can seriously damage your credit report, but there could be errors that make even worse than it is. For example, debt that is listed as active or late rather than discharged can harm your credit more. Hence, it is highly recommended to check your free credit reports after bankruptcy. If you find an error, you can report it as soon as possible. We at KenStone Capital can assist you in getting bankruptcy-related things removed from your credit report.
Most of the customers may find unfair credit reporting and outright inaccuracies. Hence, make sure that your previous bankruptcy should not appear on your credit report after seven or ten years.
Pay Your Bills On Time
Paying all of your bills on time is an important aspect of rebuilding your credit score. Paying your bills on time, such as your credit card and Consumer durable loans, helps you avoid late fees and keeps your accounts from going to collections.
In general, payment history accounts to 35 percent of the CIBIL score. You may instruct the bank to make payments on your behalf by setting up a standing order, ensuring that you do not miss or make a late payment.
Apply For a Secured Credit Card
It’s usually harder to get new credit after bankruptcy due to higher interest rates and fees. However, it will help you to develop new credit after bankruptcy and demonstrates that you’re a responsible lender. Hence, it is highly recommended to apply for new secured credit card to start rebuilding your CIBIL Score.
Apply for a secured credit card: Secured credit cards are those that are issued in exchange for a fixed deposit. The credit limit is based on a percentage of your fixed deposit amount. This will help you in optimizing your CIBIL score, and if you have the credit card, make sure that you not only make all of your payments on time, but that you can use it consistently, remain within your credit limit, and make your monthly payments on time. Never allow a late payment or default on other loans and make sure to use the credit card very often to enhance your credit score.
Take a Car Loan
After clearing bankruptcy, consider taking a car loan after one or two years. Purchase a vehicle within your budget and make sure to avail an affordable car loan that can be paid off easily. As most of the lenders can charge a high interest rate, check around and get quotes from different banks and non-bank financial institutions.
Stay Within Your Credit Limits
It is important that you remain within your credit limits once you have re-established credit. Maintain a low credit balance by paying off your debts on time and not missing on any payments can eventually helps you to rebuild your CIBIL score.
Avoid Job-Hopping
Although frequent job changes won’t affect your credit score, but lenders look at your credit report more often when you submit an application, especially after a bankruptcy. They want to know that you have a consistent source of income and that you will be able to repay the loan.
A lender or bank considers your salary, work history in the previous 24 months, credit score, and other considerations when reviewing your application for new credit or a loan. Having a stable job is advantageous because it increases the lender’s trust in your ability to repay the loan even after bankruptcy.
Make Your New Credit Card Payments on Time
Payments made on time and in a constructive way are the two factors that have the greatest impact on your credit score. Be sure you make your monthly payments on time when you get a new credit card, whether it’s secured or unsecured. To avoid going into debt again, it’s always better to pay the balance in full.
Don’t Close The Accounts
Staying off your credit cards may seem to be a good idea, but it will further damage your credit score. When you close a credit card, you are reducing the amount of credit you have available, which lowers your credit score even further.
Instead of vowing to never use credit again, concentrate on using credit cards and loans sparingly, while making all of your payments on time, and keeping track of your credit information on a regular basis. Together, these steps will help you re-establish good credit within a few years of filing for bankruptcy.
Bankruptcy can be a stressful situation as well as a financial nightmare. However, with patience and some well-informed decisions, you can repair the damage to your credit report and CIBIL score. Ensure on-time payments, secure small and secured loans, repay regularly, and stay well within your credit limits, and your CIBIL score will improve quickly.
