When unplanned circumstances cause you to consider a Chapter 7 bankruptcy filing, your thoughts may also include the issue of rebuilding your credit. It may take some time and effort to achieve your goals, but the results may prove more than worthwhile.
As noted by Bankrate, a variety of factors affect your FICO score. An awareness of how they work helps you get on track toward restoring your credit.
Your debt-to-income ratio improves after a discharge
Your debt-to-income ratio affects your credit score. After a Chapter 7 discharge removes a significant portion of your debt load, your ratio begins to look better. This may not place you in the “Good” credit-score range, but the bump-up helps you get started.
The important factor is keeping your debt-to-income ratio in your favor. Hold off for a few months before adding any new debts to your post-discharge budget. Applying for new credit may lower your score regardless of whether you receive an approval or rejection.
Consistent on-time payments help your score
Making monthly payments on-time helps raise your FICO rating. Your payment record accounts for about a third of your score. A secured credit card may provide an opportunity to demonstrate an ability to make consistent on-time payments.
Wait a few months after your discharge before you apply for and deposit funds into a secured credit card. Make sure that the card issuer reports your payments to the credit bureaus.
Maintain a close watch on your credit reports
Apply for a yearly free credit report from each of the three major credit-scoring companies. Then carefully review your TransUnion, Experian and Equifax credit reports for errors or inaccurate information and report them to the company that issued the report. Removing a past-due account that should not show on your report may result in your score increasing.