Repairing your credit score is important as it’s what financial institutions use to approve you for mortgages, loans and other forms of credit.
Credit scores are an overall picture of your borrowing and repayment status. They go up when you use credit responsibly - taking out loans and making repayments on time, for instance. Lenders charge more for borrowing when you’re bankrupt, as they will almost certainly consider you a bad risk. You’ll pay higher interest rates and bigger penalties if you fail to make a payment (which doesn’t help you rebuild your credit score).
Money will be tight after a bankruptcy, but is possible to gradually rebuild your credit rating. Here are some simple tips to make the process easier for you.
- Find out where you stand by taking a look at your credit report. This will give you an idea of your current score and let you check for any errors. You can do this free of charge at annualcreditreport.com.
- Never fail to pay a bill on time. This is crucial - 35% of your credit score is made up by your payment history - so set up direct debits, standing orders or set reminders on your calendar.
- Your credit card limits will be small, but keep well below them and pay the bill on time. Use your cards as little as you can and clear the balance each month if possible - this won’t have a negative effect on your score.
- Having said that, don’t stop using credit cards completely as this will have a negative effect on your credit score. You need to show that you can manage your credit responsibly – which means getting credit and paying it back on time. Closing accounts reduces the amount of credit available to you, leading to a lower score.
- Even if you haven’t got a credit card, apply for one. You’ll probably have to start with a secured credit card - where you pay a sum of money as security against any failure to repay. Using it responsibly and paying it back in full every month will help increase your credit score without costing you interest.
- Get a mobile phone contract and pay the bill on time - your supplier will report your payment habits to the credit bureaus each month.
- Use your bank account responsibly and don’t go overdrawn.
- Don’t take out credit or loans if you can’t afford the repayments.
Keeping a close eye on your finances, using manageable sources of credit that are available to people with bad credit ratings and always paying bills on time are key ways of restoring your credit score after bankruptcy. It will take time, but it’s not impossible.