Being Smart About Improving Your Credit

credit scoreIn the modern era, debt is not a simple matter between you and your creditors.  Anyone who has ever rented an apartment, applied for a credit card, or tried to set up payments on a new car knows that credit scores play a significant role in determining whether you will be able to obtain credit.  For those who have had financial difficulties, this can be frightening, especially if those difficulties have resulted in bankruptcy.  Bankruptcies can remain on your credit report for up to ten years, and a bankruptcy will affect your credit score as well.  But you can take steps after your bankruptcy to improve your credit—all is not lost forever.

Of course, when you go through a bankruptcy, you should have a licensed attorney by your side to make sure that your interests are protected and that all of your debts are properly handled.  When you go through the process with your attorney, you can discuss your specific situation and how you should move forward after bankruptcy.

However, a report by USA Today discusses some common strategies to improve your credit.  These strategies are all part of the “conventional wisdom” on improving your credit, but they should be discussed with an attorney before making any decisions.  The strategies include:

  • Opening a new credit card;
  • Checking your credit score online; and
  • Taking on a new loan to improve your mix of accounts.

Opening a New Credit Card

For people whose financial problems were at least in part due to excessive credit card use, this may not be the best method for improving credit.  Building up more debt can just create a cycle of problems.  This can also be a poor strategy if the only credit card you can obtain comes with annual fees.  You do not want to have to pay a fee just to keep the card open.

But, if your bankruptcy, like many, was due to a one time catastrophic event, like a medical crisis, and that crisis has passed, you may consider this strategy.  A large part of your credit score is affected by what is called your “credit utilization ratio.”  Basically, this is the amount of credit you are using on your credit cards compared to the total amount of credit available to you.  Taking out a new card and not using it can improve this ratio, and thus improve your credit.

Checking Your Credit Score Online

Immediately following a bankruptcy you should have a crystal clear picture of your financial situation.  But over time, this will change.  In order to make sure you are getting credit for all of your responsible bill paying and not being wrongfully blamed for financial mistakes, you will want to check your full credit report annually.  Credit reports, especially free ones, do not necessarily include your FICO credit score.  The FICO score is what most lenders will look at to determine your credit.  Until recently, you had to pay to get this score.  However, now some lenders and some credit card companies are providing your score for free on your monthly statement.  So if you are in the market for a new credit card, you may want to shop for one with this specific benefit.  There are online companies that offer so-called free credit scores, but many of them come with a whole host of strings attached, and wind up costing more than they are worth. Others provide their own proprietary credit scores, not the official FICO score.

Taking on a New Loan to Improve Your Mix of Accounts

A very small portion of your credit score comes from the types of accounts you have on your report.  This leads some people to take out loans that they don’t really need to improve their credit rating.  This is generally not a good idea unless you are able to get a fee-free loan at zero percent interest, which is extremely unlikely for anyone, let alone someone who had gone through bankruptcy.

Ultimately, the obstacles faced after bankruptcy can be difficult to navigate alone. For help with any bankruptcy-related issues though, the attorneys at the Law Offices of Stephen B. Kass, PC are prepared to help.

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Photo Credit: Sean MacEntee cc