While bankruptcy eliminates previous debts, it remains on the credit record for up to ten years, making it challenging to acquire loans and mortgages in the future. On the flip side, it is an excellent opportunity for a fresh start to take hold of your finances and life. Read this article to learn how to get on a financial footing in Modesto and avoid facing financial challenges again.

Rebuild Your Credit

Although a filed bankruptcy can stay on the credit report for seven to ten years, its effects on the score fade with time. You can start rebuilding the score immediately by doing the following:

Checking the Credit Report

Restoring your credit following bankruptcy involves understanding the credit report. You can access your credit report at AnnualCreditReport.com. Typically, free credit reports are available once annually.

Understanding what constitutes a credit score helps increase your score. Moreover, it will help you identify mistakes bringing the score down, like incorrect public records or inaccurate account information.

Finally, it can assist you in confirming that the bankruptcy case is not in the report after ten years and seven years for Chapter 7 and Chapter 13 bankruptcy, respectively.

Monitoring the Credit Score

You should monitor your credit score monthly. You can create free online services (most credit score firms offer their clients free updates).

After the court discharges your accounts during bankruptcy, check your credit score to verify the changes are correctly reported.

Also, monitor the score for identity theft red flags to prevent a further drop. It can include a fraudulent loan application in your address, name, incorrect account status, or a civil lawsuit you were not involved in.

Obtaining Your Secured Credit Card

Lowering the dependence on a credit card is an excellent step toward rebuilding your credit following bankruptcy. Nevertheless, using secured credit cards assists you to start restoring your trustworthiness to lenders.

Obtaining your secured credit cards involves making refundable security deposits and borrowing against them later. Although the card has a high-interest rate, if it reports to three (3) credit bureaus, they can prove responsible credit habits until you qualify for conventional cards with more favorable terms. TransUnion, Experian, and Equifax are the three major credit bureaus in the United States.

However, applying for your secured card does not always guarantee acceptance. Therefore, research thoroughly before applying and select a company that provides prequalification.

Seeking a Credit-Builder Loan

You can also build credit without qualifying for a loan by obtaining a credit builder loan. The loan will allow you to hold money in your certificate of deposit or secured savings account. Then you can make monthly payments and interest until you repay your loan.

Taking Advantage of a Co-Signer

If a person faces challenges becoming eligible for loans after bankruptcy, they can consider using a co-signer. A co-signer is a person who repays a debt if the borrower fails to act so. While the co-signer is not entitled to the loan, they are accountable for the debt balance if a borrower fails to make payments.

Consequently, you should cautiously choose the co-signer. Ensure the person is willing and financially stable.

Becoming an Authorized User

Sometimes finding a suitable co-signer can be time-consuming, making building the credit as an authorized user on another individual’s credit card more reasonable. Being an authorized user means having a credit card in your name attached to somebody else’s account. You can use the credit card to make purchases without qualifying for this account on merit.

Your card payment will reflect on the credit report. Therefore, timely payments and low credit utilization rates will improve your score. Moreover, ensure your credit card provider reports your payment to three major credit bureaus.

Practicing Responsible Credit Habits

Responsible financial habits are essential to rebuilding your credit following bankruptcy. Here are recommendations to get you started:

  • Lower your credit card use — Reducing the frequency you use your credit card or avoiding it altogether can hinder the temptation to overspend and reduce the likelihood of falling into behaviors that previously led you into financial challenges.

  • Make consistent and timely payments — Payment history accounts for 35 percent of the overall FICO credit score. Focus on making payments on time on all your debts to prove that you can be financially responsible.

  • Keep your credit balances low — Your outstanding balance accounts for 30% of your FICO Score Calculation. Consequently, keeping your credit balances low is critical to rebuilding credit.

  • Practice patience

Stick to Your Budget

Most people face financial challenges because they fail to manage their money correctly. Watching your spending habits can ensure you stay within your means and avoid overspending.

Sticking to your budget and seeing where your money is going versus your income can assist you in living within your means and avoiding accruing debts. Money management apps can come in handy. You can also track your spending by noting your purchases in a journal.

Save Your Bankruptcy Paperwork

While it might not seem like an essential step, ensure you save your bankruptcy paperwork. If a debt collector or lender contacts you in the future about a debt included in the bankruptcy case, it will be good to have the paperwork with you. Additionally, you could be asked for copies of the case in the future, mainly when applying for financial products like a loan or mortgage.

Maintain Your Home and Employment

You should secure and keep your job if you do not have one. Moreover, find a good place to live in. A stable employment and residential history show your lenders that you are reliable.

Most potential landlords check credit references to disqualify any unreliable tenant. If you cannot afford an apartment, consider living with a loved one until you are financially stable.

Moreover, potential employers can request credit histories and scores of applicants to measure personal responsibility.

Increase Your Income Streams

Creating several income streams allows you to have numerous cash flow sources. It also puts you in a better position to be prepared if one source of income fails, preventing you from falling into bankruptcy again.

There are many ways of making consistent additional money, whether active or passive, including:

  • Salaried job — For many, the 9-5 salaried job is their primary source of income. Your goal should be making the most and utilizing all employee benefits.

  • Investments — You can consider investing in the stock market through Roth IRA and 401k. Typically, the investments pay out in capital gains and dividends.

  • Online business —The internet has enabled many to work online. You can start a blog, drop shipping, sell on eBay, or have a YouTube channel.

  • The gig economy — The gig economy is rapidly growing thanks to technology firms. Consider companies like Airbnb, Lyft, Rover, and Uber, where you are paid for tasks through the platforms.

  • Consider having a rental income.

Building Your Emergency Fund Can Help Have a Financial Standing

An emergency fund is an amount of money kept back for emergencies or unplanned expenses. You can use it for motor vehicle repairs, medical expenses, or home repairs.

Without savings, an emergency can impede your progress. And if you obtain a loan or use a credit card, it can result in debts that can be difficult to repay.

The amount of money you require in your emergency fund depends on the unique circumstances. Think about your previous unexpected expenses and their cost. It can assist you in setting goals of the amount you should save.

Strategies to Build Your Emergency Fund

Saving money can be challenging if you are living hand-to-mouth or have unstable employment. However, any amount can offer financial security. Discussed below are savings strategies that can assist you.

  1. Make Saving a Habit

Building your savings is effortless when you have consistent income or a regular paycheck. If saving is challenging for you, the following are principles to create and stick to your saving habit:

  • Set your financial goal — Having an achievable and specific financial goal can assist you in remaining motivated. Consider finding a savings planning app online to determine the duration it will take you to achieve your goal depending on the amount and consistency of putting money away.

  • Make consistent contributions — It involves saving a specific amount daily, weekly, or monthly. Ensure the amount is specified.

  • Monitor the progress regularly — You can track your progress by writing down your total contributions or having automatic notifications of the account balance. Tracking the progress can inspire you to continue saving and offer gratification.

  • Celebrate your progress — If you are practicing savings habits, find ways to appreciate and treat yourself. If you have achieved your financial goal, set another one.

  1. Managing Cash Flow

Cash flow involves timing when you are receiving your income and spending it. If the timing is off, a person can find themselves running short. However, managing it allows you to see any opportunity to modify your savings and expenses.

  1. Take Advantage of Your One-Time Opportunity to Save

There are times during the year when you receive lots of money. It can be during your birthday or holiday when you receive cash gifts. It could also be a tax refund.

Although it is tempting to save the amount, keeping all or a given percentage can assist you in setting up the emergency fund.

Can Bankruptcy Affect Your Future Employment Opportunities?

No local, state, or federal government agency should consider your previous bankruptcy case when determining whether to hire you. However, that is not the case with private employers, and some applicants have found bankruptcy in their past haunting them.

Bankruptcy can cause problems for those seeking jobs dealing with money like payroll, accounting, and bookkeeping. Most companies conduct credit checks on applicants.

Although a company requires your consent to run the credit check, the employer can refuse to hire you if you fail to give permission. If your potential boss requests authorization, speak candidly about what they will find. Being truthful and honest could work in your favor.

Can You Purchase a Home on Mortgage After Bankruptcy?

Bankruptcy can adversely impact the ability to obtain a mortgage. Your mortgage lender can see that you had challenges managing debts. The lender can interpret it as a red flag.

Additionally, lenders will need you to wait for a while after bankruptcy before qualifying again for a mortgage. How long you should wait depends on your bankruptcy chapter.

Chapter 7

Chapter 7 wipes away all qualifying debts. If you filed Chapter 7, you will generally need to wait 2 years from the date the court discharged the bankruptcy case to become eligible for a loan.

A government-offered mortgage loan is more lenient and flexible. You could potentially qualify for this after 1 year of the bankruptcy discharge or dismissal to qualify for a United States Department of Agriculture loan (USDA). You would likely also need to wait one year to qualify for a United States Department of Veterans Affairs loan or a Federal Housing Administration.

Chapter 13

Chapter 13 involves debt reorganization where you should make scheduled loan repayments to the lenders.

The duration you must wait before qualifying for a loan following bankruptcy depends on how the court handled the case. Generally speaking, you are eligible for a home loan 2 years after filing the chapter 13 as long as you remain current on the chapter 13 payments.

What Mortgage Can You Obtain After Bankruptcy?

No rules exclude a borrower from acquiring a specific form of loan due to their history of filing for bankruptcy. Provided you satisfy the waiting period, you can apply for any type of mortgage. However, you are more eligible for some mortgage loans than others.

For instance, FHA loans have shorter waiting periods than other types of loans. Additionally, it has a lower credit requirement. You can purchase your home with a credit score of 580 points. Moreover, you can qualify for a mortgage with a score of 500 points if you make a 10% down payment.

Find an Experienced Modesto Bankruptcy Attorney Near Me

Contrary to popular belief, bankruptcy is not the end of the road for your financial life. Over time the above tips can aid you in getting on track. However, if you are contemplating filing bankruptcy, you should first weigh its advantages and disadvantages. While it can assist you in eliminating debts and give you a clean financial slate, it can also ruin your credit score. Before filing your case, consider calling Modesto Bankruptcy Attorneys at 209-314-3010. We can highlight and elaborate on these factors so that you can make a sensible financial decision. If you have financial problems and are looking for bankruptcy solutions, contact us.