How to repair your credit after bankruptcy and get your finances back on track.
Making the decision to declare bankruptcy is a difficult one which is made with an eye to improving your finances. Bankruptcy lasts a number of years, during which time you can start to improve your financial position so you're in a good place when the bankruptcy is removed from your credit report.
This guide will take you through what you need to know about improving your credit during and after bankruptcy.
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How to repair your credit after bankruptcy
By taking any of the following positive financial steps, you can start to improve your credit position after bankruptcy:
- Work on your employment circumstances. The financial security that comes from having stable employment can improve your credit rating by showing lenders you have a regular source of income. A permanent or ongoing job will also help your overall financial circumstances, so it is a great first step to take.
- Grow your savings. Assets such as savings can improve your credit rating by showing lenders you have the ability to financially manage your accounts and make loan payments. Start by regularly putting money aside, even if it is just a small amount that you transfer to a dedicated savings account, and remember every little bit counts.
- Consider getting a term deposit. If you have a lump sum of money you can put into a term deposit account, you may be able to use it to get a secure loan that will help re-establish your credit accounts.
- Limit your credit applications. Too many credit applications can negatively affect your credit history. After bankruptcy, it’s important to be selective about the types of credit you apply for to increase your chances of approval. If possible, only apply for one product at a time and look for options that are likely to be approved, such as secured loans, options with a guarantor or joint accounts.
- Make payments on time. Whether you have a secured loan or an electricity account in your name, making sure you pay the balance on time will help you build up good credit history after bankruptcy.
- Talk to issuers. If you want to apply for a particular product after bankruptcy or find out what options are available, consider calling up banks and other lenders to discuss your situation. They will be able to advise you on your eligibility and answer any specific questions that you have to help you find options that will work for you.
The longer you focus on these six key things, the greater the impact will be on your credit file. So it is important to realise this process does take time, but is definitely worth it in the long run.
What to know about credit repair agencies
There are a number of credit repair agencies that claim they can improve your credit report. These "credit repair" or "debt solution" companies may advise you on your credit file and act on your behalf to challenge any incorrect listings on your credit history but may not be able to do much to actually fix your credit file after bankruptcy.
In fact, the government’s MoneySmart website warns people to be wary of these companies as they “may not always be able to do what they claim”. So if you are interested in getting a credit repair agency to help you improve your credit file, make sure you compare different options and research their services so that you know exactly what you are paying for.
What types of credit cards can I get after bankruptcy?
If you want to apply for a credit card after bankruptcy, it’s important to look for cards that have reasonable eligibility requirements for your circumstances. Some options include:
These cards come with low minimum income requirements and offer basic features. However, this could be the right type of tool to manage your finances.
You could consider applying for a low credit limit card once you’re back on track in terms of spending and saving. The low credit limit would ensure that you don’t spend beyond your means, but you might have to pay a high-interest rate.
Some credit cards allow you to apply with another person, which means both your credit histories will be assessed for the application and you will share responsibility for the account. If the other applicant has a good credit history, it can increase your chances of the credit card being approved so that you can start building up a good credit score.
Remember that it could take time before a lender is willing to approve your credit card application after bankruptcy, so try to have patience. The most important thing under these circumstances is that you work towards better credit history, so only apply for a card when you are confident you’ll meet the eligibility requirements and can manage the account responsibly.