5 ways to rebuild credit after bankruptcy in Utah
Knowing how to rebuild credit after filing for bankruptcy in Utah is an important part of financial literacy.
It is no secret that filing for bankruptcy can take a toll on a Utah resident’s credit score. However, it is possible to rebuild that credit. Though there is no quick fix, there are several ways a consumer can establish a better score, such as the following:
1. Take the classes
A person filing for bankruptcy must take two courses: The first is a credit counseling course prior to filing, and debtor education after filing. Even someone who does not file for bankruptcy can benefit from these courses. The credit counseling class will occasionally help determine if bankruptcy is necessary. The debtor education class will help people learn how to use credit wisely.
2. Establish a budget
Proper money management begins with a good budget. A budget should take into account all sources of income and all expenses. People who need help establishing a budget are encouraged to work with a credit counseling agency that is reputable. The Utah Division of Consumer Protection maintains a list of organizations that satisfy the requirements of what is considered a responsible agency. Experts urge consumers to work with one of these organizations rather than others that could be out to take advantage of people. At our office, we have a long standing relationship with a responsible agency and the cost is included in the cost of filing bankruptcy.
3. Build a savings account
Having money saved can help keep people from resorting to dangerous tactics when unexpected expenses arise. Even having just a few hundred dollars in the bank can prevent a late payment, underpayment or a last resort like a payday loan. In general, someone should create a budget that allows them to save even a little bit of money every month. That being said, this is advised ONLY if you do not have any post-bankruptcy judgments against you or you owe back taxes after filing bankruptcy. Either of those situations can result in a seizure of any funds you have in a bank.
4. Know your credit score
After going through bankruptcy, a person can expect to see a lowering of their credit score. How much it lowers is different in every case. There are a number of ways to obtain a credit score, and some are even free. Doing this enables a consumer to ensure that the report is accurate and does not have false information that could make the score lower.
5. Get credit
Having a bankruptcy on your record can make you appear less attractive to lenders, but securing some type of credit after a bankruptcy filing can boost a lender’s confidence. While generally a bankruptcy attorney won’t encourage going into debt after filing bankruptcy, there are several options for people who have struggled financially, such as the following:
- A secured credit card, which is backed by a deposit the consumer makes
- A secured loan, which can be backed by money in a bank account or cash paid upfront
- A co-signed loan, which requires someone else with good credit to vouch for the consumer
Each of these has advantages and disadvantages and should be researched thoroughly.
6. Use credit wisely
Lastly, consumers should know how to use credit wisely. For example, someone applying for a loan should only borrow what he or she can actually pay back. Every bill should be paid in full and on time. If your goal is to obtain further credit, Credit card balances should NOT be paid in full. Rather, an individual should make payments equal to the minimum payment, plus a little extra. Showing the ability to pay on time, over time, is how credit scores increase. Your credit card should never have a balance of over 25% of whatever your limit is.
Taking these measures can help someone get back on his or her feet following bankruptcy. Anyone who has questions should speak to an experienced bankruptcy attorney in Utah, such as myself.