Receiving a bankruptcy discharge is not only the starting point of your financial fresh start; it is the first step you will take to reestablishing your credit. After your bankruptcy exit you will need to begin rebuilding your credit rating and history by establishing and maintaining new relationships with lenders. In order to do that you will need two different kinds of credit.
Revolving Credit Agreement
A revolving credit agreement is usually established with a credit card. Debtors exiting bankruptcy may not be able to immediately get an unsecured credit card; but they will be able to get a secured credit card. In order for a debtor to get a secured credit card, they will need to deposit a specified amount of money with the company. That money will be held in escrow at a bank and will secure the credit card just in case they fail to make payments on the secured credit card. But after so much time of making timely payments on a secured credit card, the creditors may be willing to extend unsecured credit to the post-bankruptcy debtor. Some financial experts are suggesting that debtors exiting bankruptcy get two secured credit cards and make timely payments for 6 to 13 months and then attempt to have the secured credit cards “converted” to a unsecured credit card. Many credit card companies already have systems step to make this “conversion” happen automatically.
Installment Credit Agreement
Installment credit agreements usually occur with things like a car or even appliances. Debtors exiting bankruptcy should apply for an installment loan, but they need to make sure that payments will be reported to the credit bureaus. The easiest way to do this is to take out a car loan; but it may be challenging to get a decent interest rate right after bankruptcy. Debtors exiting bankruptcy should first establish those 6 months to 12 months of timely payments on their credit cards before attempting to apply for a car loan. But once they are able to get a car loan after bankruptcy they need to make sure they can keep up payments or else the new loan could ruin all of their efforts of reestablishing their credit rating.