After Bankruptcy: Credit-Building Myths

October 27, 2011 by  Filed under: Bankruptcy 

After declaring bankruptcy, your primary focus might be to rebuild your credit score. After all, you know that while bankruptcy is a black mark on your credit report, it’s not a death sentence for your finances: bankruptcy is on your credit report for seven to ten years, but lenders will start working with you if you show responsible financial behavior after just a few years.

With that in mind, it’s important to hit the ground running as soon as your debts are discharged. If you want to rebuild your credit score to a robust level, make sure you avoid these massive credit-building myths:

1. You may have heard that opting out of credit card offers will help your credit score, but that’s not the case. While these companies look at your credit score to send you pre-screened offers, credit rating agencies regard these as “soft” inquiries; therefore, they don’t affect your credit rating. You can opt out of these offers (yes, you’ll get them, even after bankruptcy), but don’t do it in the hopes that it will help boost your score.

2. If you think that closing your old credit cards will help your score, think again: money experts indicate that closing your accounts will actually damage your credit score. You see, your credit score is made up of a credit-to-debt ratio – and if you close an old account, your credit-to-debt ratio will inflate. Keep your old credit cards open, but put them on ice (literally – sticking them in the freezer is a great temptation-avoidance tool) if you’re afraid you’ll use them again.

3. Similarly, if you’re tempted to get as much credit as possible after getting your debts discharged in a bankruptcy, you’re plummeting your credit score. When you do this, banks begin to wonder just why you need all that credit – and they start to get wary. Additionally, these “hard” inquiries lower your score, which means you’ll be in worse shape than when you first started applying for new credit.

4. Paying your credit card before the due date only works if you use the following technique – you need to pay the entire balance in full before the close of your new statement. Instead of looking at your due date, look at the new statement date and consider that to be your new payment schedule. It can raise your score rather quickly.

5. Negative payments don’t necessarily have to have a negative impact on your credit score – in fact, financial experts indicate that it’s possible to have a 700 FICO score and a bankruptcy that’s at least five years old. That’s why it’s incredibly vital to start rebuilding your credit score as soon as your debts are discharged in bankruptcy.

Declaring bankruptcy doesn’t have to be a death sentence for your credit score – make sure that you don’t fall for these credit-building myths, and lenders will be ignoring your bankruptcy in just a few years.

Reed Allmand is constantly looking for ways to improve the financial situation of his Dallas Bankruptcy clients. You can visit to view more articles like this and find great tips on managing your financial situation.

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