It does not matter what brought you to this point. You are there. The bankruptcy is over, usually Chapter 7 – a total wipeout of the debts – and you believe you are now the highest credit risk on the planet. Lots of things may be going through your mind at this point, from feeling like a failure for letting your creditors down, to finally feeling free because you are no longer afraid every time your phone rings that it is someone who wants to take yet something else away from you.
Now is the time to be careful. In the coming weeks and months, you will be inundated with every credit offer known to man. The invitations will bog down your mailbox asking you to apply for this credit card or guaranteeing you acceptance for that credit card (for a low annual fee, and possibly a secured amount of funds in the bank) and then the car dealerships will get to you.
You are wondering why in the heck this is happening. However, more than wondering why, you just may be tempted to immediately start rebuilding your credit by applying for all those wonderful lines of credit that are suddenly open to you.
The old saying “buyer beware” should seriously go into play about now. Read the fine print on every offer. The interest rates are going to be astronomical. Repayment terms will be stiff. Penalties for late payments are going to ask for everything shy of your first-born.
Why is this happening? Well, because since you just cleared a bankruptcy, you have no debt. Your debt to income ratio is zero debt to 100 percent income. You cannot file bankruptcy or ask for court intervention if you get yourself into trouble again for close to a full decade from now. You are no longer a risk. The banks, credit card companies and automobile dealerships have recourse they did not have a few short months ago. Now if you default, it will be far easier for them to attach your wages, bank accounts or any assets you may have held onto during the bankruptcy.
You must be very smart about how you are going to go about rebuilding your credit. Do it slowly. There are a couple of very good credit card companies that will help you rebuild your credit at a slow pace and with minimum of risk for them. Usually that means you will pay a fee for their services and frequently they will start you off with a secured credit card. A secured credit card is one where you put a specific amount of money into a checking or savings account, reserved for this amount of money only (say $200.00 to $400.00). If for whatever reason, you do not make your payment, the company will take the money from the account immediately to pay the full balance due and close your credit card account.
What would be a more prudent course of action, is to give yourself a few months for the offers to stop or at least slow down a bit. Make sure that for a given time, the only bills that you have are your rent (or mortgage), your car (if you still have it), and your utilities. Most cell phone providers report to a credit agency, therefore if you do not have a cell phone, that is a good place to start building credit. Within a year, open three minor, preferably secured lines of credit and do not allow any of them to come close to reaching the full balance. Purchase something minor on the card, pay it off at the end of the month and make sure there is no balance to carry over for the credit card company to charge an interest rate on.
Take time to build your credit slowly – I cannot stress that enough. It took a long time to reach the point of bankruptcy. It will take a while to get the credit cleaned back up. It can be done. Just do not be in such a hurry that you do it the wrong way or unwittingly get yourself in over your head.
