Bankruptcy is a serious matter, but it’s not the end of the world for you and your credit score.
Your credit score gives an overview of your borrowing history and repayment status. It will increase when you use it responsibly. Making regular repayments on a loan on time will reflect positively on your credit score. If you fail to meet the repayment guidelines, your credit score will go down and you’ll pay higher interest rates and bigger penalties.
A bankruptcy stays on your credit file for six years after the fact. This means even once you’re discharged from your bankruptcy, you’ll find it difficult to apply for a loan. You may be charged a higher interest rate or refused credit altogether.
Money will be tight after bankruptcy, but it is possible to gradually rebuild your credit rating and get a more affordable loan. Here are some simple tips for what to do when you’re in debt.
Know your credit score
The first step to improving your financial situation is to fully understand its current state. You’ll need to take a look at your credit report to get an idea of your current score, checking for any potential errors along the way.
Find out more about checking your credit score.
Never miss a bill
Your payment history is arguably the most important element to your credit score, accounting for about 35% of the overall health of your credit. So it’s crucial to ensure all scheduled bills and repayments are always made at the correct amount on the agreed-upon date.
Setting up Direct Debits and standing orders can make life easier for you, as you don’t have to worry about going to the bank. All you must do is ensure the correct sum of funds is in your account ready to be transacted. If you can’t set up a Direct Debit, add a reminder to your calendar so you’re always prepared.
Register on the electoral roll
Being on the electoral register can benefit your credit score, as it means lenders can verify your name and address. You’ll need to make sure you keep your personal information up to date, making your local Electoral Registration Office aware if you move to a different address.
Responsibly use a credit card
If you don’t have a credit card, it could help to apply for one. At first, you may only be granted a secured credit card, where you pay a sum of money as security against any failed repayments. However, once you can start making consistent repayments, your credit score will gradually begin to reap the benefits.
Using a credit card may seem like the wrong thing to do when you are drowning in debt, but it can help in the long run. Start by using your credit card for small purchases. A trip to the supermarket for necessities or a tank of petrol here and there, paid for by credit card, can really help your credit score. It’s a responsible way of spending without purchasing unnecessary items.
While you might use your credit card as sparingly as you can, it’s important not to stop using it completely. This could perversely have a negative effect on your credit score. When trying to get back to a place of financial stability, it’s important to demonstrate you can manage your credit responsibly. Just make sure you clear your repayments at the end of the month in full and your credit score could increase.
Consider your joint finances
If you currently have any joint finances, it’s important to be aware of their credit rating as well. A poor credit score of theirs could also reflect badly on your own. If this is the case, it may be time to financially part ways. Just make sure you make your preferred credit reference agency aware of this financial separation so they can appropriately reassess your unique situation.
Use other lines of credit responsibly
- Get a mobile phone contract and pay the bill on time. Your supplier will report your positive payment habits to the credit bureaus each month.
- Use your bank account responsibly and don’t get 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.
Find more useful guides to managing your credit score on the Know How blog.