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26.02.2018

Rebuilding Your Credit Score after Bankruptcy

Rebuilding Your Credit Score after Bankruptcy

After 12 months, once you have been discharged, you may begin to look for bankruptcy advice about how to rebuild your credit score. This might be because you want to take out a mortgage for a house, buy a car, or get a loan for another reason. Although it is important that you avoid serious debt obligations that you cannot afford, debt that you can afford to repay to fund your future is not inherently bad.

Remember: you might still have up to two years of repayments due, repayments for debts not included in the bankruptcy, and it will be five years before your bankruptcy is removed from your credit file, but the debts included in your bankruptcy debts should now be discharged and have a zero balance, giving you the beginning of a fresh start.

Your first step, therefore, may well be to look at your credit file and assess how much damage your problem debts and bankruptcy have had. It should cost you about £2 to ask a credit agency to give you your credit report, and you should use this chance to make sure it is as accurate as possible. This means check your name, your address, all your details, and, in particular, you should check your newly discharged debts. They should all have a zero balance. If anything is wrong in your report, contact the creditor first and foremost to enquire and explain the situation, and then contact all credit agencies to make sure they update your file.

Tip: Asking for your credit score often can negatively impact your credit score as it can make you appear desperate or unstable, so only ask for it when it is absolutely necessary.

After you have checked your credit file, don’t be disheartened – things should only get better from here. This doesn’t happen overnight, however, and it is important to do what you can to give yourself the best chance. Here are some great tips to improve your credit file and score:

  1. Join the electoral roll

This might seem simple, but registering to vote is the kind of thing that can make you seem responsible and stable to credit agencies. Other tips for appearing responsible and stable include: not changing address too often, having a landline telephone number,

  1. Keep up with your ongoing repayments

This might seem obvious, but it is vital to changing your financial habits and gaining a fresh start. Bankruptcies don’t deal with every type of debt, and it is possible that you might still have a few debts, such as student debts, mortgages. Don’t fall into arrears, and pay off any arrears that you do have, and this should help towards improving your credit score.

  1. Use a credit cards

This might seem counter-intuitive, particularly if credit card debt is the reason you went bankrupt in the first place, but using credit cards for normal payments, and then paying it off immediately so you don’t have added interest, will prove that you can pay your debts. This is not the same as using your credit card to borrow money. Ideally you would find a card that has high interest rates, but low credit limits so that there is the maximum effect on your credit score, but you can’t take out too much. These types of cards are often sold as ‘credit-builder cards’, but they aren’t for everyone, so if you aren’t comfortable with the risk of high-interest, try a lower interest-rate. Never take out more than you can’t immediately pay back using the cash in your bank account, and it might be a good idea to set up a direct debit to pay your credit card bill, to make sure you ever forget to pay it off.

  1. Avoid credit repair scams

You will see plenty of adverts online offering to help you improve your credit score. But the truth is, there is nothing a company can do that you can’t do yourself, and a company is likely to charge you fees.

Ultimately, it is important not to distress, time heals most things. In five more years, evidence of your bankruptcy will be removed from the Insolvency Register, and thus from your credit report, and this will improve your credit score yet again. If in the mean time you borrow responsibly and prove yourself to be financially stable, there is no reason for you not to have a reasonable credit score.

It is worth noting, however, that bankruptcies may still have an effect after 6 years. This should only be in cases where a lender directly asks you if you have ever been bankrupt. Mortgage lenders often do this, and you cannot lie as this would be a criminal offence. However, if you work hard to save a significant deposit and have a very good credit score, it is possible to get a mortgage provider to consider you. Choose that provider wisely, however, as lots of mortgage application rejections can also have a negative effect on your credit score.