Bankruptcy affords you the opportunity to start over and begin to rebuild your financial future. While ensuring your credit recovers from delinquent accounts and high debt burdens is important, make sure you do it the right way.
Most people assume they should run out and start soaking up credit right away after bankruptcy. You will want to get credit, but you should start with reviewing your credit report. Make sure to check your credit report for accuracy and the most up to date information. Debts that were discharged in bankruptcy should be reflected as so on your credit report. In other words, your negative or delinquent account status should be removed and your account should be considered “satisfied” or the like.
After checking your credit report you have basically two options for getting credit: (1) an unsecured line of credit that has a higher spending limit and better terms or (2) a secured line of credit with a lower limit and less favorable terms. Depending on your new found financial habits either one of these options may be pursued. However, they each come with different benefits and risks.
An unsecured line of credit is less risky after bankruptcy as you will not be required to put up any asset as collateral on the loan. You will have more opportunity to shop around for the best deal on an unsecured line of credit. With more favorable credit terms, you will be less likely to face high interest rates. The important thing to remember here is that you want to accumulate manageable debt burdens that you can afford to pay each month, in order to establish a positive payment history.
A secured line of credit is more risky after bankruptcy for several reasons. First, you are less likely to obtain favorable terms leading to high interest rates and steep consequences for default. They can also be difficult to secure after a bankruptcy. However, a secured line of credit used responsibly can boost your credit faster than an unsecured line of credit. The key factor here is staying out of default at all costs to prevent any threat to the asset used as collateral against the loan.