No matter what you do, sometimes bankruptcy still gets the better of you. After going through the pain, doubt and fear inherent in filing for bankruptcy, you might feel lost as to how to start rebuilding your credit and opening new lines of credit. There are four smart and effective solutions that you can consider to insure that you can still have access to money that’ll you need to help you recover.
Have a Cosigner on Your Account
After everything that your credit score has been through with your bankruptcy, your credit may not be high enough to take out a loan that you need to pay your debts or a credit card to help you pay for everyday expenses. Cosigning with someone allows them to take on your debts if you fall behind or miss a payment. Financial institutions offer cosigning so that they can still give you the financial service that you want, without risking a loss of their own money if you suddenly can’t make your payments. While it is rare, several financial institutions who allow cosigning on credit cards, but your chances of being allowed a cosigner are much higher if you opt to take out a loan instead.
This is the best option if you have a friend or relative with high credit that is willing to pay off your debts in the event that you default on your debt payment plan. When deciding on someone to be your cosigner, make sure you choose someone that will not have a strained relationship with you because of cosigning on your account. Make sure that this person also has a history of paying their debts on time, because if your cosigner falls behind on their payments, then you will have to pick up the debt for them, which can start a vicious cycle of debts and repayments.
Have an Authorized User for Your Account
Though it can feel the same as having a cosigner, having an authorized user on your credit card can also help you build up credit. Authorized users hold the primary cardholder responsible for paying the debts that they owe on their credit cards. They also, put simply, hold cards in other people’s names. The authorized user is not the primary cardholder, but they are allowed to make purchases on the car so long as any debts they accumulate are paid back. They are legally not responsible for the debts of the primary cardholder, either.
This can help improve credit because financial history makes up 35% of the FICO score, so when you add multiple people to one card, and both parties are punctual about paying debts, it can lead to positive financial history and a better credit score over time. Being an authorized user can also help that user’s credit, as even though they are not legally responsible for the card’s transactions, the account will still appear on their FICO report. While an authorized user should also have a high credit score, they can easily raise their credit score by having a good financial history and paying the debts on this trade line. It can also help increase the average age of credit, especially if the card has been open and in use for a long time, which helps improve scores as well.
Take Out a Secured Loan
Secured loans involve assets, also known as collateral, as security against defaulting on the loan or missing a payment, or series of payments, on the loan. This provides some insurance to the lender so that even if the money does not come, they have something of the same value so that they do not lose money on the loan. Mortgages, car loans, secured credit cards and title loans are examples of the different types of secured loans.
These are excellent options for people who have been denied unsecured personal loans since financial institutions are more likely to lend to someone that they know they will get their money back from, either in the form of payment or in the form of collateral. Even if you have collateral that will cover the cost of a loan, be sure that whatever secured loan that you take out is payable. You don’t want to lose a car or property if you don’t have to, so stay on top of your debt so that your financial institution doesn’t take your collateral. After all, the reason you’re getting a loan to begin with is to help you improve your credit score by eliminating debt, to make your situation worse.
Consider Specialized Loans for Bad Credit
Online cash loans, personal loans, and other specialized types of loans also exist to help people with low credit try to improve their credit fast. They may be secured loans, but more often than not these super specialty loans that fit into a category all on their own will be unsecured personal loans. This option will require a bit of research on your end, as it requires knowing the financial institution, knowing the requirements for the loan, and other special financial circumstances about getting the loan before you commit to taking on that responsibility.
Furthermore, taking out a specialized loan will help improve your credit score because it can establish a bit of positive payment history. It would also be especially helpful if the specialized loan was a type of loan or credit that you did not use before or did not use often, because FICO considers mixes of credit when it assigns you your credit score; the more types of credit that you use, the better your score. While it only accounts for 10% of your FICO credit score, it is still 10% that you want to be strong, especially after the damage to your credit score that your bankruptcy has inflicted.
Although you and your credit have been through a lot, these are four ways that you can start rebuilding your credit and establishing a good credit score with new trade lines after you file for bankruptcy. It can only go up from there, and hopefully, you feel comfortable taking one of these four paths to a brighter, more stable financial future.